Australia warned to put aside extra money to guard against housing crash

The Sydney Morning Herald is running a story today:
Australia warned to put aside extra money to guard against housing crash

"Standard and Poor's has urged the Morrison government to start putting away money to guard against a housing crash in the event that the market does not continue its soft-landing."

What should individual investors be doing? I'm hearing with the oversupply of apartments flooding the market, that many investors are being caught out with empty rentals and/or falling rents.

What buffer should property investors be targeting to be able to continue to pay the mortgage when loans switch to P&I and they have no tenants?

What is a reasonable period to not have tenants and how will this blow out in the coming years as more apartments flood the rental markets?

 

My plan has been paying down debt. I will keep going for 6-12 months. Then I will have almost none and will try to pick something up when I have more control than the seller.

With luck I can find a B+ house that the seller is under pressure and use leverage to get a good deal.

I need to be careful because I have a high income but my salary is pretty closely connected to economic performance. If housing market goes real bad my earning capacity will be hurt terribly. So I need to be able to escape using my partners very stable income.

Basically I’m using the same plan as I did in 08. But then I was younger so I didn’t have as much capacity to buy into the declining market. Then I was only able to get a cheap small place and like 30k of stock.

For those who are wondering. I have no issue trying to catch a falling knife.

 

Short answer: Anyone taking debt should always be prepared in case things don't go as planned...

Doesn't matter if it's car loan, credit card, investment property or home loan. Be prepared with some kind of back-up, such as -

• Multiple sources of income
• Equity
• Quick sell (Shares or Property with enough equity)
• Extra hours to produce spare income
• Help from parents

Law/external factors will always keep changing. It's "Investors Job" to put right team in place to mitigate all kinds of risk..

From property perspective, key team players are -

• Buyers Agent
• Mortgage Broker
• Accountant
• Quantity Surveyor
• Property Manager
• Book Keeper
• Conveyancer/Solicitor

Together they should be able to help individual make right decisions..

Cheers,

 

If a crash does come, it's just crashes back to pre-boom prices, probably from 30% to even 50%. The only option is to take losses and sell really. Investors doing IO would have all been chasing CG, a reversion to PI and vacancy are won't concern them as much as what prices are doing.

If it's OTP stock many are just gonna walk away and developers will cop it.

 

Problem solved!

 

I've looked at one of my properties as an example - it is well established with a good yield. When I swap to P&I - I will need to tip in 50k over ten years for principle repayments and that is temporary as then the I component reduces significantly.

If you own crap assets then you need a larger risk provision. The yield on most new apartment stock is miserable so it probably doesn't make that much difference not having tenants especially if interest rates rise.

 

What are you studying?

 

Dr Y-man soon

 

You'll sound like a James Bond villain!

 

Well, if clearance rates for auctions are anything to go by, yesterday's super Saturday clearance rates are some of the lowest I have see

 

Standards and Poor's credibility dived out of the 100th floor window along with some stock brokers during the GFC.

I think any property investor should have access to or hold a cash buffer of 6 months worth of repayments/living expenses. So if you need $5K per month to keep your head above water then you need $30K in the bank or a rich uncle to put the bite on if things get grim.

And I'd hold on to that buffer amount until the market gets better or when @sash starts talking positive about the Druitt!

 

I prefer 2 years as selling assets can take time in a tough market especially with direction of interest rates. Also everyone should check their Income protection, I usually like it to have a 2 year wait period for cheaper premiums but I have at least 2 year buffer anyway

 

Hi would you mind elaborating on what this means with a real example?

Thanks

 

Thanks for this it’s something i will consider. I’ve been struggling with what to do next as we have just got the fortunate position of having the PPOR loan fully offset.

I wasn’t sure if I should just start parking savings in an offset again an IP or start repaying extra or convert one loan to P&I and see how that goes. I’ve got several loans that may (who knows what bank policy will be in a few years) gradually convert to P&I over the next 7 years and I’m trying to be proactive so any advice is much appreciated.

 

We budgeted for P&I on IP, but signed up for IO. The difference in payment amounts is paying down our PPOR. When the IP goes P&I (lol) we'll simply redirect the additional payments on the IP. I guess its one of the few upsides of having only one IP.

We also keep 3 months cash in offset and worst case the GLW can go back to working full time rather than part time.