I bought the book last Saturday and read it in 2 sittings. I’m getting very excited about it.
My question is about interest rates. Interest rates are on the rise and historically they average around 10% (source is Steve’s book). If you calculate a positive cash return on a property based on a certain interest rate, how do you hedge against rate rises turning your cash flow negative?
In a buy & hold, I presume that means taking out a fixed interest mortgage? In the book Steve mentions that he uses offset accounts. My bank (Westpac) doesn’t offer offsets on fixed interest loans. Is it possible?
Another answer I saw from the book was to use a wrap.
Thanks Mel. I just read it. Seems pretty sound unless interest rates go crazy (remember 17% in 1989?). I think that in the current market conditions I’d be tempted to fix all the loans. The other thing to consider is that fixed interest loans usually can’t be had for more than 5 years and who knows what the interest rates will be then! Can always sell though I guess.
Steve talks about a 3 month cash buffer but I’m a little bit more cautious than that and aim for 12 months. Probably due to my life situation more than anything else. With a lot of properties, that can amount to an awful lot of spare change []
Best thing for me is to start small and see where it leads.
Kim
Kim, I wouldn’t fix all my rates now, you will still pay a premium. For peace of mind perhaps fix some though.
If you’re going to keep that much of a buffer, I strongly suggest you have an offset account or a LOC to make that money work for you, but be readily available.
Cheers
Mel
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