I have just read Steve’s book for the 2nd time and have a couple of questions which I hope some of the experienced investors may have an answer for and that is the area of risk management.
Owning say even 20 or so properties with an average of $30 per week positive cashflow in a market with stable interest rates is fine how do you manage the portfolio in a market that may see interest rate rises of 3% or more turning the cashflow into a negative cashflow?
If you are using funds from the equity in your own home how do you structure the purchases of multiple homes so as not to jeopardise the family home should the investment turn sour?
Are there lenders who will give fixed interest rates for 10 years or more? Does this make the numbers prohibitive for a positive cashflow?
What exit strategies do people have for the worst case scenarios?
I have just left my job as a licenced real estate agent and I am now looking to enter the investing side of real estate. If I can answer any questions from an insiders point of view I will do my best.. I think with all investments it is a wise person who looks at the downside as well as the up before risking the large amounts of money involved in the investment process.
Kind regards and I look forward to your obsevations
Ngai
Hi Ngai
Hope tha following answers are of some assistance:
Are there lenders who will give fixed interest rates for 10 years or more? Does this make the numbers prohibitive for a positive cashflow? A – Yes many of the larger mainstram lenders offer such rates
What exit strategies do people have for the worst case scenarios?
Never overcommit and ensure that you do your due diligence on the property to minimise tenant vacancy and a fall in price. Utilise landlord insurance
If you are using funds from the equity in your own home how do you structure the purchases of multiple homes so as not to jeopardise the family home should the investment turn sour?
A – The age old question. Put the property in the spouses name and she can lend the money to the Trust or the entity investing in the properties. Revalue your properties and increase the loan to repay the debt secured against your PPOR. In saying this you will often find that a PPOR has a lot of equity tied up in it and is most investors look to access that equity
All in all don’t over comitt. Talk to a good mortgage broker about loan planning your properties to ensure what you get meets your objectives and not his.
I
Cheers
Richard Taylor
Residential & Commercial Finance Broker
100% Finance on selected properties in the USA.
Email us to be added to our mailing list.
[email protected]
Ph: 07-3720 1888Richard Taylor | Australia's leading private lender
Hi,
I know this does not answer exactly what you asked, but is classified as risk management.I would suggest a .25 or even a 1% rate rise is only one risk you need to plan for. Other items I think are important to minimise you risks are:
1. Insurance – to protect you from accidental or deliberate damage
2. Pests and rot
3. Lack of maintenance leading to structural damage
4. Liability (fire alarms, key locks on 2nd story windows, fences that wont fall down, etc)
5. Property ManagementThese I would rate are much more important to concern yourself with on an overall risk management plan. I can assure you poor management causing malicious damage that was not appropriately insured will be much worse than trying to determine if you got duped going for a variable rate loan!!!
Hope this helps the thinking on risk
MatBluntly, interest rate rises mean trouble! If you can pass it on to your tenants then you can live with it. The same rule of thumb applies to all the other expenses you may run into. There is no magic! You have to have enough coming in to offset that which goes out. The minute that you start laying out more money than that being paid to you; you become a loser. You can also become a loser when it does not come in quick enough to cover your bills.
um replace the word “loser” with “learner” [exhappy]
Nice one mathewc73,
….but losing is a hard way to learn! Some people never recover from a heavy ‘learning experience’.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
