If you have more than 3Ips and although geared under 50% and expect interest to raise to 9% (which in my case would add around $4K a month to my payments).
Other than locking down for 5 yrs—what other stratagies are you considering?
I have a few ideas but interested in other veiws.
Thanks
JohnHi John
i own more than 3 IP’s and i don’t believe interest rates will get anywhere near those levels.
But to play it safe i always have a mix of fixed interest rates, in fact i have more fixed than variable.What do you mean by “locking down for 5 years” ?
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
John are you referring to the BIS Shrapnel report that forecasts rates hitting 10% in 2008, inflation, recession before recovery in 2010? Its a very interesting scenario they have laid out.
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
Locking down–fixing interest.
Yes I do agree that 10% is unlikely in the forseeable future.
Rates are used to slow down spending and that seems in the short term to be under control.
While I do expect some increase I think it will be gradual rather than a spike.
But from the replies here there seems to be very few with any number of IPs OR lots of ostriches who havent considered Risk Mitagation!
Not suprisingly topics that deal with protection of asset draw far less interest than those on creating asset.
Hi John
in response to some of your comments,
But from the replies here there seems to be very few with any number of IPs OR lots of ostriches who havent considered Risk Mitagation!The forum has been very quiet over the weekend, perhaps the election ? you may see a few comments from now on. I know a lot of people on this forum who own more than 3 properties.
You mentioned you have a few other ideas apart from fixed rates, what are they?
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
I think you might be misjudging people in here just a tad. I don’t think they are being ostriches at all, nor do I think they haven’t considered IR hikes or Risk Mitigation as you so aptly referr to it.
What I believe, is people aren’t panicking, and are realistic in their expectations, which is not a bad thing at all.
I have more than 3 IPs yet IR hikes won’t affect me in the slightest, but that is beside the point. I take risk managment/mitigation very seriously, and I am in no way an ostrich!!!
Furthermore, if everyone in here was in as equally a fortunate position as yourself, to be less than 50% in debt, such favourable circumstance would have minimal bearing on one’s anxiety level and as such would not be cause for alarm even if rates do hit the predicted 10% figure, wouldn’t you agree???
Jo
Firstly.
Jo
My comments werent personal mearly a general observation.Lets take a 2mill portfolio of which one owes 900K.A 1 % rise = approx $9k a year.
3% = $27K and heaven forbid 5% = $45K or $850/week.
Now even $525/week for Mr and or Mrs above average would be difficult.I was interested to hear from the Market Sauvve like yourself Jo.Often ideas pop out of nowhere.
Westen I have 3 stratagies Im using currently one already mentioned Locking down Rates and 2 others that also take into account my personal veiw that the vertical spike skywards is flattening at the least.
Im happy to share the other 2 if others dont come up with them.Im just looking for fresh ideas.
Humans are the DUMBEST of creatures.
They do the same thing day in day out and expect a DIFFERENT result.techa,
I am not a lock-in type- I go for variable rates- a lot can happen in 5 years- it is possible that rates might even go down, although our economy would have to flatten considerably for the RB to stimulate activity in that way.
I rely on wage rises to counteract IR rises. I also pay extra into my mortgage, so that, if times get tough and IR’s rise, I can ease back a bit.
I have no doubt that IR’s *could* go to 10%. There may be a lot of people out there working a second job if they do.
kay henry
Interest rates rising maybe. OK here’s the effect I reckon it will have.
Home-owners who occupy their home – i reckon all who can afford to will grumble and wear it, maybe fix rates, and others will have to sell.
Negative gearers – will be even more out of pocket and “save even more tax”. Haha. half of them who reckon it’s good to lose money and “save more tax” will hold, and others will sell, figuring out that losing in the short term to get capital gains in the long term works fine but if capital losses are likely it’s doubly not worth it. Those ones will sell.
New buyers will sit back and wait as they have heard prices could drop further and interest rates could rise further.
rents will skyrocket as there are more people renting that would otherwise go for buying, and former home owners who might sell up, invest in another market, and rent where they live.
I heard Dolf de Roos say he bought his first property when interest rates were 27 percent. And it was still cashflow positive because rents were sky high. (inflation etc.)
So I think if you keep evaluating each market it’s either going to be a time to sell or a time to buy.
One other thing is that I keep getting emails for finance available in the US for 3.5 percent, ‘you have been pre-approved’ etc. Although web spam might be a crock, it does raise the question – how easy (or wise) it is to borrow from another country where interest rates are way lower?
joy to the world
I have heard the problem arises in the mortgage security… Yankee Doodle Mortgages doesn’t want to have to come down to Bourke in order to foreclose you to get their money back, hence I doubt they would do it. If it is possible, someone please correct me as I would be keen to explore it. Maybe we need to start a thread in the Finance forum?
Extensive list of ‘Off The Plan’ property available for sale in Perth.John – 0419 198 856
27% Well Im 50 and cant ever remember 27% 18 yes.
You can borrow off shore $$s.
Exchange rates can be the killer.
If the USD tanks then you win.
If the A$ tanks you lose.
As did 1000s of Australians who took up the Westpac offer years ago.Westpac still arrange off shore loans Im told.
Question.
Why wouldnt you lock down a 5 yrs loan when interest rates are the lowest in 30 yrs.
Do you seriously think they will fall before they rise!?MM I wish real life was that simplistic.
Kay where does one get a job where an increase of wages even equates to 5% let alone 18%
IE $9000 on a $50K/Yr average wage?
Seriously if you have over 3 Ips and geared over 50% then even a 1% rise will need attention.Prices will fall and there could be fire sales in some cases—-if your connected you may even get a few.But that wont get the punter selling the IP when its to late out of the bind.
Sorry but Im still not seeing any suggestions infact Im seeing avoidance.
Humans are the DUMBEST of creatures.
They do the same thing day in day out and expect a DIFFERENT result.hehe.. well, at least I answered the Q, techa- sheesh.
Seriously, IR’s are not going to rise all in one go. I get wage rises every year, and in fact, they should negate any small IR rises on my current level of mortgage- not on yours- but on mine. That’s my answer, techa- and to pay extra on my mortgage. That’s not avoiding the Q- that’s how I deal with IR rises.
I’ve never been a fan of lock-ins. That’s just me- others like them.
kay henry
Hi All,
Thought I’d jump on the band wagon. I have 3IPs, and soon to purchase my 4th so consider myself a rookie but here goes. Some have already been suggested, but it sounds like you want a list of idea’s.
1. Fix a portion of your loan
2. Fix all of your loan.
3. Add value to your current IP’s and increase rents.
4. Buy more positive cashflow properties
5. Pay more off your mortgage
6. Go into partnership with someone else and share the costs and returns
7. Relook at your budget and see what you can save on.Each investor has their own level of what type of risk they are comfortable with and I believe it comes down to this. If you are concerned with interest rates rising and are comfortable that you can pay the interest if you fix now then I guess you need to take that into consideration.
Also, I would be interested to know what your other idea’s are if you’d like to share.
Hope this helps anyway.
[blush2]
Cheers
Fluffy
Ok.
Youve,basically picked 2.
The second being liquidate some of your IPs and freehold as many as you can.Having 2 freehold now Im selling 2 more and freeholding one other.leaving then 6 of which 3 will be F/H.
This frees up capital if required for some bargains/alternate investments and limits exposure.The 3rd is allocating some funds to Trading on Margin.(I have been trading for 10 yrs)
Even a small successful account can offset pending interest rate rises and or give a nice return.Over the last 2.5 yrs Of 3 portfolios of varying initial funds returns have been over 100% (In that period).So an initial $50K investment is now around $110K in value.
With locked in equity sitting in our IPs this is another way to make it work and you need’nt use it all.
John
Humans are the DUMBEST of creatures.
They do the same thing day in day out and expect a DIFFERENT result.Hi techa,
Firstly John, I realise you meant no malice in your “ostrich” reference; I guess I should have included one or two of [biggrin] to highlight that although picking you up on it, I was not upset by your comments. Hmmmm…having said that I now notice you have edited your original post!!
Unfortunately I cannot contribute to suggestions made here, as I am (like Mini) debt free and therefore IR rises will not affect me at this time. But having said that, I don’t believe those that DO have debt will automatically hit the “panic” button and start selling off IPs left, right and centre.
Sure if IR rises are so severe, people with 3 or more IPs, will re-evaluate their circumstances and many may well offload a few to “ease the squeeze” (alas poor Latham he will be remembered for some things)!!! [biggrin]
People with little experience of the market who heavily invest in property often overlook factoring major risks into the equation when crunching the numbers, for example the likelihood of EXTREME IR increases, being lumbered with the tenants from hell, the reality of high vacancy rates and so on. IMO this is purely bad/poor risk management, which in the end, will cost them dearly!!!
However John, I think you basically have all your avenues covered, and one of the main reasons you should be okay is that you are ensuring adequate liquidity (through your shares) should the need call for extra cash (ie. IR increases). Smart move!!! [winking]
Finally….
Mini,
As you know I am 41, having observed and actively invested through 4 property cycles, and never have I known IR to be shocked2] 27% (so in the words of PH) could you “please explain”??? [blink]Cheers,
Jo
Hi all
firstly to answer mini’s question since she isn’t here, Dolf claims his first purchase was in NZ at very high interest rates.
Secondly Techa,
Sorry but Im still not seeing any suggestions infact Im seeing avoidance.why the concerns with lots of strategies you only need one. Fixing interest rates will protect you IF rates rise.
Thirdly, it appearsto me you are attaching member of the forum for failing to prepare incase of a rate rise. If you are concerned about expose and risk whyallocating some funds to Trading on Margin.(I have been trading for 10 yrs)
Even a small successful account can offset pending interest rate rises and or give a nice return.This is high risk compared to having a variable rate, margin loans are a variable loan at a higher interest rate than home mortgages, If interest rates rise so does the margin account, plus you have the added risk of a falling market (the stockmarket is at record highs), which means margin calls. Sound Ok in a rising market but they go up and down.
fourthly the borrowing of funds from Overseas, is an interesting option (but with risk as you say), what security do you need to get the loans ?
regards westan
I live in New Zealand and for a fee find cash positive deals there, email me at [email protected] to join our database
The level of IR rates is probably a bit off topic, but some 12 years ago, I was getting 18% interest on a deposit over a year. So IR’s would have been about 20% then. That was the highest I ever remember them being. The next year, the deposit rate fell to 16% over 5 years, and I thought it was too low- hehe. Actually, it’s fortunate I put my money into RE, because I made more from that over each year.
I had an on topic comment, but have to go to work- hehe. I’ll chuck it in later.
kay henry
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