The reason the value can be important even though the cashflow remains is that the banks may require further security or recall their loan.
A real domino effect, refer to my earlier post on page 1
Cheers
JeffTwo important factors to always remember with LTV are;
Financial position and Financial performance.
The fundamental difference is between purchasing an investment and purchasing a good or service. If I borrow for investment purposes and the investment decreases significantly in value (and the costs of servicing the investment do not exceed the income) then it is a poor investment.
What difference does it make as long as people keep repaying the loan ? Well it makes a huge difference because you are just injecting funds into a poor investment. Using that same logic it wouldn’t matter if your interest rate was 50% as long as you can pay it back.
And if people are not concerned about negative equity then they will never be wealthy. $1,000,000 worth of property with $1,500,000 of debt means net worth of ($500,000). So you sell all your properties and they have to find another $500,000 to pay back the bank. No wonder only 2% of the population retire wealthy.
Is LTV what other people call LVR?? [blink]
Seems highly irregular for people to say it doesn;t matter if one has negative equity… Sure, we can just keep paying off our debt. We now have 600k of assets and 1.2million debt… Oh No! Only last month it was 700k of assets- oh well, never mind- who cares? [confused2]
Our assets are supposed to *grow* not shrink. Talk about negative gearing in a big way “Yeah, my assets lost half their value last year- that must mean i’ll get a good tax return!!”
I don’t understand that at all. Please explain?
kay henry
LTV = LVR
LTV = Loan To Valuation ratio
LVR = Loan to Valuation RatioYou guys are still way off teh mark on negative equity.
Sure it is a bad thing but if prices are going down who cares how much equity you have in the deal !!
Nat i’m lost with your last statement – who cares how much equity they have – isn’t the basis of investing to create equity.
Equity is like cash, are you saying that at the end of your investment career you don’t mind having negative equity? – what books have you been reading?
[wacko][wacko][wacko][wacko]
Nat R
The “erosion” of equity is something all investors must be aware of – it does happen and can result in negative equity, hence this discussion.
There is nothing to be concerned about – at least if you are aware of the consequences you can take appropriate steps to protect yourself.
Adding value, improving rents, fixing interest rates and stabilising cashflows are all forms of hedging against a downturn in the property market.
Cheers
JeffI think people need to keep perspective in all of this… If people can keep paying their loans until the next property boom (IF), sure enough, the boom will ‘regather’ those poor neg equity lost souls, and behold, turn them into substantial positive equity ‘born agains’…happens in cycles, folks, and it’s why there are now a lot of people with equity in property. How many could have achieved it by saving, alone? .001%
Relax, and enjoy the prosperous cycles in life…
Originally posted by DeClair:I think people need to keep perspective in all of this… If people can keep paying their loans until the next property boom (IF), sure enough, the boom will ‘regather’ those poor neg equity lost souls, and behold, turn them into substantial positive equity ‘born agains’…happens in cycles, folks, and it’s why there are now a lot of people with equity in property. How many could have achieved it by saving, alone? .001%
Relax, and enjoy the prosperous cycles in life…
This is true.
But in some cycles, this has taken quite a long time to play out.
We don’t know how long this cycle will take, or how far down it will go. IMO the more prices hold up the longer it will take to play out.
Agree with your last comment but would add to pay heed to them when buying
The interesting thing about this boom is the low interest rate which has sparked 100% loans – i think the banks will have to be careful how they play out this one.
If people can afford to hold their properties well and good, but generally in these cycles rents drop and their financial positions change.
Remember the Australian AVARAGE WAGE is about $40,000.00 per year!!!
Hi Residential Wealth,
Just a minor clarification – Average wage across Australia for males was $49600 and for females $41900 in January 2003 (source ABS)
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
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