hi all
i notice with alot of postings and reading in the media that people are borrowing for property with absolutely no fear.
people are adopting different strategies
negative gearing (somer style)
postive cashflow (lomas style)
positive gearing (mcknight style)i took the plunge a couple of years ago having been influenced by the
jan somers/margaret lomas stylefinally saw a property investment advisor which pushed over the edge to go ahead.
I chose to go with the lomas style but ended up with the sommers style.
The advisor basically was all about creating mountains of good debt till you use all your equity/tax minimisation etc.
I sometimes ponder on this type of investing and whether it is suitable for people with families that have enough equity to get started but are putting there own house on the line.
I hate to think what is going to happen if one othe the many variables start to become worrying
interest rate rises
vacancy rates
loss of job
change of job less money
values downturn
major borrowing the total loan
using all the equityMaybe i’ve become too much of a thinker but there would have to be a less stressful way to get a reasonable result.
Positvely geared properties can also become negatively geared but if chosen correctly
not likely as has been shown by the members of this forum.seems the hip thing is to have
heaps of properties
and in debt up to your eyeballs
have your equity in your ppor exposedThe banks win either way
The advisors win either wayEvery one wins with no risk except the person taking it as there head is in the noose if it goes wrong.
Am i becoming too cautious?
regards
alfHi Alf – I’ve found Jan Somers is fairly even-handed re growth versus yield, particularly in books & articles written in the last couple of years (refer to ‘More Wealth from res prop’ & a recent article in API).
However Monique Wakelin is very staunchly in favour of neg gearing.
I share your concerns re debt, though make sure that you aren’t using these for an excuse to do nothing! I notice that though Steve seems to advocate putting down a reasonable deposit (even though this lowers C on C Returns) there is little mention of prudent maximum debt ratios across the whole portfolio.
This is fine if you want quick results and are willing to take big risks.
But if you’re unwilling to take this risk, why not proceed, but set a max debt ratio, eg maximum of $100k loans for every $200k of equity?
Of course this will slow your portfolio’s growth, but at least keeps debt levels down.
Peter
Plus you can always throw in a few quick profit opportunities – eg buy cash under market prices and resell at market prices immediately, small reno’s etc. All investors dabble in a bit of arbitrage from time to time … keeps the blood pumping!
Cheers,
Mel
The topic ‘levels of debt’ is closed to new replies.
