Call me a bit of a sceptic, but what if the interest rates go through the roof (like in the 80’s) If you gear your property (now) positively for the next five years, lock in the interest rate and watch the profits roll in. WHAT if interest rates are at an all time high of say 10% after your lock in period is finished. What happens to the postively geared properties that we all had? I just think that you must tread with caution. I do not believe that the book mentions this VERY inportant fact. This is part of the risk you are taking. The only outcome of this will be negatively gearing the property which is what our forefathers have done in the past, on the advice of mentors.[
] Your thoughts.J
A valid concern Jane.
Noone can tell you what to do. You need to consider all the risks and make your decisions.
A valid choice is to do nothing. Personally I think there is a likelihood that a person might regret this choice down the track…
End of the day it is your money, your goals and your life.
All the best,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
I thought u might like to know that Steve has done an extra chapter on the exact question that u ask, i have read his book “from 0 -130…” but i havn’t had a chance to read this extra chapter. Damn it, i thought i still had the adress to download it from, its an acrobat file, and i think i got the link from an email. U have to download acrobat reader first from http://www.download.com, and then u can view it after u download it from https://www.propertyinvesting.com/bonuschapter
MattHi there,
It’s a good bonus chapter. JaneJane you asked a good question, considering that IR’s are at an all time low in about 30 years.
In brief (because you can download it) from the chapter, Steve talks about a mixture of P&I, fixed loans etc. among other things.Cheers
Sooshie []“small steps make the journey” (SAS)
Thank you Phobia for that useful information. I will print it out and read it.
Thank you
Janejane
Just a quick point,
It’s true that if interest rates rise a positive cashflow prop. could become neg. geared, depending on how much leverage you have.
However, if you start off neg. geared and interest rates rise…how negative can you afford to go?
Just a thought,
Sue[
]Be careful not step on the flowers when you’re looking at the stars
Sue,
The point is if you are buying for positive cash flow in rural areas, often you are buying low quality, low capital gain property with no depreciation benifit. Most people that accept neg gearing as a strategy are after long term capital gain and tax benifits to cushen the neg cash flow.
A negative geared country property is not a pretty scenario in my mind.MJK
I agree with you, MJK
a negatively geared country prop. is not my cup of tea either.Perhaps my reply was not clear, and it was just one aspect of property investing that I was focusing on. I realise that ist is much more complicated than this one point.
What I mean’t was, with regard to interest rates rising…
If you start of with a +cashflow prop. paying 50p/w, IR rise, the repayments rise and now it COSTS you 50 p/wIf you start with a -geared prop. costing you $50 p/w, IR rise and now it costs you $150 p/w.
I hope that makes my simple point more clear,
Sue [
]Be careful not step on the flowers when you’re looking at the stars
Is it worth waiting till the property bubble bursts and prices come down. Buy cheaper, maybe rent cheaper too, but it will rise again, so your cheap property can earn a good rent as property starts to recover again.. [^]
Regards,
Arty.[
]
“Why work to the age where you cant enjoy
what you have worked for !.” (Author: Me)Arty,
Only if you believe that prices may come down to below today’s values.
There are other possibilities.
They may level off, they make go up further and level off, they may continue to rise for the short to medium term. Who knows? A year ago many people said that further rises are unsustainable.
I am not trying to make any predictions – rather am trying to point out areas for thought.
Cheers,
Simon Macks
Mortgage Hunter
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Sue,
I know what you mean. My point is that if you get non cost tax deductions ( ie div 40 & 43 )and are on a high tax bracket, going negative is not so scary. I do worry about these people investing in the bush for cashflow though. If I were them I’d be locking rates in for 5 + years.
Gone are the days of buying +ve cashflow in blue chip areas, even in the smaller capitals.
I believe investors with means will be seriously considering +ve cashflow commercial albeit not for the novice.MJK
Hi Guys
Talking of -ively geared property and worrying whether the interest rates will rise as I am sure they are at some stage, don’t forget thet rents may/will drop as well. This combination will cause all sorts of heartache.
Heard today about the inner Sydney market has so many apartments and a lack of availble tenants which means that rents are coming down – from $350 per week to $300 per week. Plus a large number of new apartments will be coming on stream in the next few months. Sounds this may be a big concern for some investors late on the scene.
Regards
Jane – what about paying more than the required payments for the first 5 years so at the end of that time you have a fair amount of equity and a lower outstanding amount.
Then in 5 years time if you find repayments hard going at 10% interest, you could refinance, but for the smaller, remaining amount, so reduce the size of the payments. Of course you’d be reducing the principle slower than if you’d stuck to the original loan as well as paying more interest, but it might keep you afloat.
Alternatively (or as well) maybe put money aside for growth-oriented investments (eg shares) and reinvest the dividends (bit like a sinking fund that interest-only investors use). If the shares do well, in 10 years time you could pay off a large slice of the mortgage. Note that this is riskier than accelerating your repayments, but you might progress faster this way if returns are good.
Peter
“waiting till the property bubble bursts”-
I live in Sydney and I don’t think any bubbles have burst for a very long time, or will be bursting.
Sure, there have been years which saw a ‘softening’ of prices – but of the median – and that’s the average of all house prices. i think you’d find that it’s the top of the market that suffers. Bottom 1/4 or 1/3 I think never even ‘softens’ – they just keep on going up.
Sure if you’re thinking of buying a 2.5 million dollar bondi beachfront apartment, wait a bit, there might be a fire-sale or two, but anything under 200K is not going to be part of a bubble bursting – get it now and it’ll be 250 before you can say ‘boo’. Bubble bursts and people will trade down. So i think bottom of market will always go up.
my 2 cents
] Your thoughts.
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