Protection from Interest Rates and New Comer Intro

Hi Marvin!

Congrats on deciding to get out of the rat race through property. I must state up that we have yet to buy our first IP as my other halfd changed jobs recently and would you believe that we cannot get any finance sorted until her probationary period is finalised. Nevermind the fact that she was at a bank previously for 4years and is now with the QLD Police. I guess we’re just to risky for them at the mo. Anyway, we’ll get started in the next month or two I suppose I can be patient for a little longer.

One thing I did want to comment on with your below post was your concern about when interest rates hit 17% in the early nineties. One of the main reasons for this was the deregulation of the banking industry. This created easy passage for foreign banks to enter the domestic market. The banking sector was flooded with foreign lenders who couldn’t throw enough money at business fast enough. There were a lot of people/businesses overextended driven by the undertone of an economy humming along. However this could not last as the government needed to get some of this money back to try and level off a very volitile economy. RBA did this by utilising monetary policy i.e. manipulating interest rates. Long story short, too many foreign banks offered too much money under the new deregulated banking industry (hence Paul Keating’s statement: the recession we had to have) denoting that one of the attributes of a deregulated markets is that by design, it sorts out who should be in the market and who should be eaten up and spat out. Interest rates rose dramatically as money need to be recouped. The banking industry is no longer as volitile as those who should not be in the banking sector are no longer there, therefore rate rises of up to 10% seem to be reasonable. In my opinion, I doubt interest rates will get much higher as the circumstances are vastly different to the early 90’s. Do your risk management and allow for 10% interest as a worse case sceniario in your calculations. That way you’ll still be able to sleep at night. The above is only my opinion.

Good luck!

Cheers
Steve

quote:

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Now my question.

How can we protect our +ve gearing properties from a rising interest rate? I saw on page 145 (o-130) that the interest rate once reached 17%. That’s incredible. Then I went back to Steve’s first example on his +ve gearing purchase and calculated how the IR (Interest Rate) would affect it. And with a 2.5% rise, it would neutralize the +ve gearing.

That’s a bit close for comfort considering how erratic the IR on Pg 145 is. I looks like its going down, but I’m assuming that its going to go up soon due to Aus’s big spending/boom recently, inflations, election and the goverment is going to have to increase it.

Correct me if some of my assumtions are downright wrong, I am very new. Going from Chef to properties isn’t exactly a walk in the meadows.

Hope someone can clear me up on this. Thanks. And very nice to meet you all.

Its great to have found a forum like this where I can learn so much, and hopefully in the future contribute to.

~Marvin

“Here I am!!! Now what’s your other 2 wishes?”[]

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How do you then handle interest rates if you have a 25-30 year wrap deal?

i.e. if you buy a property and get 5 year fixed interest. You then vendor finance and your buyer wishes to have 25 year fixed.

That puts me in a risk position.

Haow do you mitigate that risk?

Hey Marvin,

I was thinking along the same lines as you. I am 26 also in mid-life crisis. Wouldn’t want to work my whole life too[]Hate the rat race i am in .
I have just stared to pick up property investments too recently, came across Steve’s book, bought it and finished it once now going it through the 2nd time. To knock and lock the info in this thick skull of mine[}].
And In regards to your question you should go download bonus chapter in this fourm under the book title. Steve has addition info on increasing IRs.
I am in Qld.MaYbe we could start a newbie fourm.[8D]. By the way i love Sushi..