Affordability

Hi,

Thanks for your post and welcome to the Property Investing.Com forum.

You ask:

quote:

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how do I know what I can and can’t afford?

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Answering this question will require you to identify:

1. What your current level of savings is, represented by the difference between what you earn and what you spend. It may be positive or negative.

2. Once you know this you will know how much you can afford to ‘lose’ in a negative return situation. The next step is to find an investment that you feel is well placed to earn capital gains – either because of its scarcity or its intended use.

3. When you have an investment in mind you need to complete a due diligence over the financials to ensure you know exactly what you are buying (ie. the difference between fact and opinion).

4. I’d also complete some basic “what if” analysis to determine if you can continue to afford the investment based on:

A. How many weeks vacant can the property be before you hit the financial red line (income = expenses)

B. The same calc. in A based on rises in interest rates.

In summary – once you know how much you can lose today (on the basis of earning more capital gains later than you lose now in income losses, then you need to find an investment within this budget and then finally complete some “what if” analysis to determine that if things go worse than expected then you won’t be forced to sell.

Thanks again for your post. Please post again []

Bye

Steve McKnight