Your opinion please (Brenda please help)

Your opinion please (Brenda help) (post #1)

Sorry for my stuff up, couldn't work out the posting tricks!

Question for all

How does one cover the downside regarding high interest rates?
Double digit IR are predicted and now warned for the near future.

Using our role model Brenda's inspiring story, (hope you dont mind) 20 houses in 5 years, this is alot of extra payments to meet unless you have excessive cashflow.

Does one work on say 10% IR when first purchasing and put the extra in each houses account in anticipating of it happening?

If so, than how does one manage to still purchase and service these loans?

Of course you can sell, but you would be doing that in a time when others are sinking with you, would rather be ready to grab some bargains and sitting pretty.

What do you do????

Thinking toooo much???
 
Why don't you just fix your interest rates for 10 years, after 10 years the costs will be insignificant compared to average wage and property value.

andy
 
I figure you'll be doing pretty badly to not double your property value and wages over 10 years. 7.2% per year compound growth sounds reasonable to me.

So a $260,000 loan on a $300,000 property today becomes a $260,000 loan (IO) on a $600,000 property in 10 years, plus I figure you'll have twice as much income to support the loan.

So who cares if the interest rate goes double digits after the 10 year fixed period, you'll have plenty of income to deal with it by then plus rents will have risen over the period and you'll have a D/E ratio of 40%.

andy
 
That is just one of the many variables involved with IP's .The higher your commitment , the higher the risk , but the higher the possible returns.

We hve a mixture of variable rates, and fixed over five years.

Alot of it comes down to the Sleep at night factor. The biggest risk probably comes from doing nothing.

See change
 
I just wanna see these predictions in writing.

What Ive learnt in my short time with property is:

rates will rise and rates will fall, property in good locations will rise and properties in good locations will rise.

I suppose though if your into positive gearing it could be an issue?
 
Very good question Starting out.

When you owe $250k, servicability during high interest rates is your problem. Fixing rates is a good idea but watch the market closely before fixing. The rates don't rocket up to double figures overnight. Fixed rates, at present, are very cheap which leads me to believe the variable won't be going up anytime soon.

When you owe just under $1.4 million, your servicablity of loans during high rates (or lack of it) will become the bank's problem.
Therefore, before any more credit is granted, the NAB does a servicability check based on an interest rate 25yr ave. This at present is 8.5%. To date although it would be difficult, it would not necessitate having to sell any IPs by us if interest rates were that high.

An option is to fix rates (may do that in 6 to 9 mths) or hold a few IPs to act as buffers. By buffers, I mean that they are ideal, sought after houses which would sell in any market for quite a good price. Another option is to refinance everything. For an annual investors fee this can let you rewrite all loans for no application fee.

Cheers Brenda :)
 
There is heaps of time to fix. The Reserve is not going to do anything drastic at the moment as it could kill the economy. Don't panic just yet. IMHO I can see rates going down before they go up again. Without housing the Australain economy would be RS at the moment.

Do not forget to have a look at our new hero's properties purchase prices. 20 IP's is just brilliant and I admire their get up and go, but then look at the price of them (not saying this is a bad thing Brenda - I am not being negative to you in any way, shape or form).

I like inner city homes on land. Never really drop in value but always remains constant when the market drops. The entry price is around $300K which is worth 5 cheepies say, but with only one tenant or PM to deal with.

I think everyone needs to look at the bottom line here - If you want to make a million choose the way you want to do it. 20 cheepies, industrial, carparks, inner city land what ever. Dont get hung up on the 20 properties get hung up on the bottom line or the total equity / profit they have made.

Again Brenda I think you are fantastic and inspirational.

Regards

Brojac
 
Welcome Starting out,

All good advice above.

Also - think of how you can safely increase the rental return from an IP. i.e add a cheap bedroom etc etc. There are lots of ways you can do this and lots of good tips on this site!

So when the cruch comes you've got a buffer in your yield.

Have fun,

bagg
 
Brojac,

You have a valid point...however one thing that pops into my mind would be that if I was to choose 2 different people to invest my last dollar would I take:

(A) Brenda and her knowledge of her market

(B) A new investor in inner city houses on land

My point is, Brenda would have a fantastic knowledge of her market and know that to really do well with her properties it is the price she buys at which is one of the most important factors

Good luck and thanks for your input

Glenn

ps...I happen to love inner city houses on land!
 
Hi Glenn
So be it!
Your right I only have 10 years experience in the 3 burbs I choose to invest in. (plus Cairns)
As mentioned my post I was not being negative towards Brenda in any shape or form, I personally think Brenda is inspiring to us all (including my patner and myself).
I was not trying to make it a betting competition either. I was just stating everyone should have a good long think about the bottom line. Brenda chooses her area where as you could achieve the same BOTTOM LINE with inner city car parks, Houses, Industrial what ever vechicle we all choose. Getting hung up on the number of properties is my issue. People think twenty properties they should be thinking over a million bucks in profit!
Again Brenda you are a legend.
Regards
Brojac
 
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