Anticipating interest rates rise/s

Hey Caddy,

This a very good question and one that all investors should be considering.

We have not purchased any IP’s over the last year and have channelled our funds into lowering our overall debt to make sure we are comfortable as the interest cycle and market eventually turns.

I hope everyone factors these issues into their thinking because as night follows day, low interest rates eventually increase and booming property markets turn into depressed ones.

Those who are unprepared will find themselves in financial difficulty.

Ben.

Great question Caddy,

This is what I was trying to arrive at over on another thread. Interest rates ARE the big issue that investors will have contend with sooner or later.

Historically property prices have not corrected without the catalyst of a rise in interest rates….which will come sooner or later.

A significant rise in interest rates will well and truly put the cat amongst the pigeons.

I am VERY interested in the answer to this question.

Fixing interest rates for as long as possible is obviously part of the solution for the wrappor, but doesn’t help a lot when the wrappee wants to refinance or when the term ends.

Cheers

Wayne

A good question to ponder about and which everyone should be busy with.

Some of the possible ways of protecting oneself are :

1. Don’t be overgeared to the point where you cannot sleep at night

2. Make sure you have access to a line of credit you can call on (so don’t sail too close to the wind by having a large debt without having moneys in reserve to fall back on).

3. have some of your assets in a trust, protected from creditors (see McKnight’s book on Trusts).

4. don’t have all your eggs in the one basket.
Have access to some cash (even to the extent of having several credit cards with large limits to fall back on – which you don’t use except in real desperate circumstances provided you can see some light at the end of the tunnel), have some money tied up in shares, have some protected assets (in a Trust), spread your assets out over different locations (it isn’t a good idea to have all one’s properties in the one small town when most of the town’s economy relies on the one employer) and above all don’t follow a policy of growing too fast (being a young man in a hurry only to see several years work crumble like a pack of cards within a short timespan because of not having reserves to fall back on when a little credit squeeze comes along.

Do a flip every now and then just so as to build up your cash situation (to increase your cash reserves, not to buy another property.

Now all of the above is something we can only accomplish over a period of time.

And re-assess your particular situation on a regular (say yearly) basis.

Does anyone want to either add to the above or perhaps disagree with some of the points ?

Pisces133

Things that will trigger interest rate rises:

1. US economy rapid growth (highly likely given rates are 0.75%, and there is fiscal stimulus as well). Also applies to Japan and Germany. Does not need to be actual growth, merely the expectation/perception of it.

2. Drought ends. Farmers will suddenly have extra cash, and meat prices will soar. This will push up CPI, causing rates to rise.

3. Money flows out of property and into consumer goods, raising the CPI. The effect snowballs.

Do not think you can wait for other countries to raise rates before you lock in yours. Banks are smarter than you. Our banks have already jacked up rates before the RBA has moved. Lock in NOW.