How Much Debt?

Discussion in 'Investor Psychology & Mindset' started by SerenityNow, 7th Dec, 2015.

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  1. SerenityNow

    SerenityNow Well-Known Member

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    I like your numbers :) Especially since I'm hoping to do something similar! With 90% LVR, what kind of cash buffer did you try to keep? eg 3 months' worth of expenses + small emergency fund?
     
  2. Rixter

    Rixter Well-Known Member

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    I pref reducing LVR over debt amount. :)

    I guess it really depends on ones harvesting phase/exit strategy.
     
  3. citystar

    citystar Well-Known Member

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    I'm comfortable with any amount of debt as long as it is income producing, tax deductible and the asset appreciates in value over time.
     
  4. Perthguy

    Perthguy Well-Known Member

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    My honest answer is "none". But I can't do what I want to do effectively without debt. For me it is risk mitigation. If my IPs are empty, how long can I make the repayments without going under? I want a 6 month buffer or I won't purchase another IP until I do.

    For me, it's not a set amount, it is a multiple of interest payments. I know both my IPs can be vacant at the same time - last time was 12 weeks. So I set my cash buffer as a multiple of what I have to cover if they are empty. Usually about 6 months for me.
     
  5. D.T.

    D.T. Specialist Property Manager Business Member

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    Infinity, as long as assets > debt by a reasonable margin, and cash flow > related expenses.
     
  6. tobe

    tobe Well-Known Member

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    I 'tried' to have 3 months, but most of the time I had the following months mortgage payments in my account up until pay day. Working as a broker I was fortunate enough to be able to refi regularly and pull cash out to deposit on the next purchase and a small buffer each time.

    I was so good at it as interest rates went up, the gfc started to bite (and I got married) I was left without any borrowing options for about 4 years. 3 of my loans rolled over to p&i during that time, and the lender I was with wouldn't fix without full assessment.

    The same predicament many investors are finding themselves in now.
     
  7. MTR

    MTR Well-Known Member

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    that's not a nice place especially when interest rates are on the rise and markets are starting to turn
     
  8. Steven Ryan

    Steven Ryan Well-Known Member

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    As a rule for this stage of my investment journey, the more debt I have, the better I sleep*


    *as it's a) intrinsic to my wealth creation and b) I have in place buffers to suit my comfort levels and risk profile.
     
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  9. SerenityNow

    SerenityNow Well-Known Member

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    Ouch.

    On balance, I think that going forward, I'll take on as much debt as I can, leaving a 6month cash buffer in place. I suppose 90% LVR is ok, given serviceability.
     
  10. D.T.

    D.T. Specialist Property Manager Business Member

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    Higher LVR is safer, means you keep more of your own money aside for buffer.

    E.g. 200K purchase 40k deposit vs 200k purchase 20k deposit + 4k lmi + 16k buffer
     
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  11. SerenityNow

    SerenityNow Well-Known Member

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    Good point, and one I'll keep in mind if I ever need LMI. At this stage, we get 90% LMI-free because of the husband's job, and I'm thinking we might as well take advantage of it, and keep more cash on hand for emergencies.
     
  12. D.T.

    D.T. Specialist Property Manager Business Member

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    If you're getting it for free that's even better :)
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    I just like having liquid assets - if the SHTF I want to be able to access funds (cash or LOC) and/or deleverage pretty quick, depending what's required.

    I agree, re LVR - keep it as high as possible, with enough cash/liquid assets on hand to offset it to comfort levels. There's nothing to be gained by having a 60% LVR, no buffer and not being able to pay for something that comes from left field.
     
  14. SerenityNow

    SerenityNow Well-Known Member

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    Yep... currently working on a long-term plan which includes building up a significant buffer after a year or so. The husband is very risk averse (he knows a number of people who've gone through bank reposession) so I think he'll be happy with 90% LVR plus a significant buffer of cash/liquid assets.
     
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  15. S1mon

    S1mon Well-Known Member

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    well said, working till 60 odd is the more worrying risk for me. happy to take on as much debt as the banks will lend me. yes some risk to it but if worst comes to worst ill have me' super.

     
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  16. D.T.

    D.T. Specialist Property Manager Business Member

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    The worst risk of them all!
     
  17. albanga

    albanga Well-Known Member

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    So many factors but for me the biggest consideration is where you have your properties. If I had mining town properties or an apartment in an over stocked CBD such as Docklands/Southbank in Melbourne then I would want a nice buffer as your in high risk.
    If all my properties were in good blue chip with suburbs surrounded by good schools and infrastructure with towers not being developed everywhere I look then I reckon even with a small buffer I would sleep well at night.
     
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  18. Fargo

    Fargo Well-Known Member

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    [QUOTE="Big Will

    Just because someone offers you something doesn't mean you should take it, you need to work out what you can afford and want to afford.

    What if you know you are going to be made redundant next week and the bank offers you $10M loan, would you take it?? I might take a certain amount that I felt comfortable but would decline the full 10M.

    90% is pretty aggressive no matter which market (yes you can go higher). 80% is more a balanced LVR with 50/60% LVR being conservative.[/QUOTE]
    If the bank offered you a $10M loan you would be mad not to take it more so if you where made redundant as it would give you many more options. You wouldn't need a job. Just because it is available you don't have to use it. 80% is risky 60% is a good balance and less than 40% would be conservative.
     
  19. Xenia

    Xenia Well-Known Member

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    Being cashed up - little debt is what is attractive to me right now in this market.
     
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  20. big max

    big max Well-Known Member

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    For those young clients, it all changes when they go through their first downturn ...
     
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