$2m+ Properties how are they funded?

Why would anyone astute be sitting on $1m cash in the bank?

 

That's what you call madness!

Its the same madness that spread over from Wall Street to MainStreet.

People tend to have a short memory, 2007-2008 financial crisis brought many middle classers to low income class. The cycle of boom and bust continues (every 8-10 years) and mini cycles of about 2 years.

I think we are due for another correction in the markets over the next 2-3 years!

Personally, i think it would be wise to cash out now, hold the cash for a while and get ready to buy when the market goes down.

 

It wouldn't be unreasonable if they have $50M in other assets. It's all relative.

Most people aren't buying a $2M+ property as their first home. They have usually sold something else and have a significant chunk of cash to put towards it.

Most investors are purchasing for well below $1M.

 

Mainly due to most properties across the country are below $1m?

 

I think it's more a cash flow and affordability issue. The rental returns simply don't scale up into higher value properties. Investors can carry some losses, but being thousands of dollars out of pocket every month is a lot to swallow.

 

Ah, that must be why some of us play in commercial space

 

Because they see a risk to capital of being invested. Its better to earn 0.point.nothing than lose XX%.
People have forgotten what protection liquidity can buy. Cash is 100% capital stable. An asute investor may wait for better days to buy property, shares etc. Too many seem to think index funds etc are a one way street. Losses can and will ocur.

If markets lose 30% then a investor needs to be patient and also wait for a 43% recovery merely to recover their loss. In the 2008 GFC the US index took until Trumps presidency to achieve that..11 years. Those who had cash bought lower value and rode it up.

 

Our household is much like the OP description. We have invested early in our working careers and have the budget to buy $2.5m - $3m now.

If we were to do this today, this will leave us with total debt of circa $2m (PPOR + x1 positive geared IP).

We will be circa x7.5 DTI including rent income. I'm a little worried to take this position right now so is sitting on my decent cash savings and looking to purchase in 12 months

 

I think Sydneysiders accept and live with it, much bigger mortgages against the PPOR's.

They also have a lot more wealth given the size of housing to Aussie balance sheets, typically there's a higher number of higher paying jobs associated with opportunities here. Nonetheless DTIs are higher here.

Nonetheless, there a plenty on decent incomes taking on $1.6m+ mortgages in Sydney.

I think it goes something like this:
- I want a max 1mill mortgage.
- Goes out to market and realises this doesn't buy anything
- Take out max mortgage please
- Work hard to pay it off

Mindsets from other cities will likely mean lower DTI's, etc. We have a good cross section of Canberra/Sydney clientele and DTIs are much lower there. They aren't looking to max out PPOR debts and would generally be much more conservative about it.

The above dynamics is why rate changes impact Sydney more so than any other capital.

 

dont forget cash is an asset. It provides crucial liquidity when you need it. It allows you to make margin calls, make cash offers on distressed opportunities, fund unexpected repairs, engage in short-term valueAdd without needing to exhaustively explain your strategy to the bank/broker

Cash can be parked in an offset to generate an instant 2-3% return which is better than losing it in today’s current volatility.

and definitely as your asset base grows - you must keep more cash - as banks and the market can change without notice. I would say 10% of your asset base is minimum and most HNWIs are probably closer to 30%. So yes if you have $30 million of Realestate- prob need to have $3-$6m cash that you can draw out of the offsets at any time.

in our group - we routinely will gear up wherever we can even though we have cash. The capital return on that optionality of cash can be insane when a good opportunity comes up - and mortgage interest is ultimately a recurring cost of doing business and helps reduce your annual income tax liability

 

Isnt natural as portfolios grow that people dont need or want to be fully invested?

 

I would say the other way around. When your portfolio is big enough your fully invested. If you have say a $20m portfolio that gives you a $500k plus income per year, why do you need another few million sitting in the bank collecting dust.

I think I am qualified to answer the question of this thread. I’m currently in the process of buying and building a house that is significantly more then $2m.

Funding is looking like this. 80% lvr loan against land. Sold a car. An expensive car. Pulled out all the funds sitting in the offset against the current PPOR which will become a IP. That will cover about 60% of the build. Last 40% of build will be borrowed. When complete the total cost to borrowing should be around 50% lvr.

Personally I don’t even want to even hold that much debt against the house. Will put a pause on investing any further for the next 12-24 months and pay down the bulk of the loan.

Thats how we are doing it.

 

Wife and I are the potential $2m property buyer in Sydney. Looking to upgrade an existing PPOR that is mostly paid off.
Problem is the $2m house comes with 95K stamp duty, and renovation costs for the areas/houses we want.
1.6m mortgage sounds pretty scary on a $250k-300k combined income. I'd want to keep our mortgage below a million as it feels like a lot(though most would consider not for our incomes), even though I know we can service it, even at higher rates. We enjoy having a mortgage right now that is super easy to service and nice life style, though we're not big spenders either. So will take some serious adjustment to having that much debt.

There's definitely some mental barriers with $2M buy and $1m Mortage for us, but we are definitely more conservative with debt than most though I think.

 

Don't be scared about the $1.6m mortgage when it's only $550 per week at 1.79% .Cheap Home Loans | Rates From 2.79% | RateCity
It's if the rates in Australia follow the NZ trend .
NZ Mortgage Interest Rates Prediction 2022/23
The rate NZ rate moved from below 2% and is expected now to hit 4.8% SO $1,500 per week
Could you afford $1,500 plus per week ?

 

$1.6M mortgage at todays interest rates is peanuts. Its basically FREE money. On a PPOR you can still find rates under 2% for variable and the big banks are actually dropping variable rates not increasing them for new customers.

Traditionally fixed rates have always been way higher than variable. Its only because of Covid and emergency rates that fixed all of a sudden become cheaper. That is no the norm.

Even if rates raise another 1% and bring the cash rate to 1.33% - seriously that is still DIRT cheap borrowing.

 

Oh I agree, credit is cheap now, and still will be for a while. But There is definitely fear out there of increasing rates.

 

What, are they with a severe grey capacity ? How could this be a surprise at all ??? I do not get it.

 

I know it is not you, but this has happened before.

Also, at that age, if you do not have the sense to sell now, sit tight for 12-24 months and select a more suitable place, then it means you want the issues/drama or are just to stubborn to face reality.

I am sure they ask for advice too, that they reject when it does not fit the pre made box they have....lol.....beyond help, but these types are what brings about opportunity for others, the hold outs, who do not act when they see the wall coming at them fast

 

There are other reasons too, one poster gave a classic example.

 

if ur net worth is 10m, 1m is only 10%.


100m only 1%

so many people have 1m in cash to buy stuff. ?