Is anyone preparing for the next downturn?

Same here plus I usually do is not sell in falling markets and I usually do is not sell in flat markets.

The only property I would sell in any market is a PPOR that is not a good IP (eg acreage). But that is more of a lifestyle decision than financial plus CGT is not normally payable.

Prior to this year (when I sold an acreage PPOR), I have only sold two properties and both were PPORs that would have made good IPs:

1. 2/1/1 Unit in Balaclava (Melbourne):

• Bought $26,000
• Sold $42,000
• Today’s Value: $800,000+

2. 3/1/2 House in Mansfield (Brisbane):

• Bought $54,000
• Sold $94,000
• Today’s Value: $800,000+

Both sales I totally regret. Look at how much capital growth I missed out on.

As I have already posted before on PC, when one sells (good) property, you are transferring future capital growth to someone else.

My definition of retirement is STOP accumulating .

 

I think I've always done more. When you play in the cheaper markets, you tend to hold more doors. Since I'm not an old girl, I'd like to hold less doors as I get even older. No matter which order I sell, there'll be profit, I'd just rather the profit be more, than less.

 

The Eleventh Commandment: "Thou shalt not consult Whingepool for financial advice"

 

+1!
And you can keep on accumulating as long as your investments permit that or as long as you wish to, not just by having extra equity but by also having passive various serviceability.
Spot on with selling, if bought in well located areas over years, the trend so far in Australia seems you are missing out on tremendous capital growth.

 

This is a great thread. I plan on exiting out a property or two in late 2023.

This is where I don't see any more growth, and I will use the proceeds to pay down 60% of my non deductible debt.

 

I am glad you can peak the top of the market, I am not that brave. Friends sold PPOR for tremendous price, downsized as rebought at much lower price, but plan to add renovation. Personally I think great approach, will add equity and live another few more years and if history repeats itself again then make very nice profit indeed!

 

I can look back at lots of decisions we’ve made and say , yes , if we’d kept that house which we bought for 570 and sold for 1.4 it would now be worth 4 mill , but for every opportunity like that I can say , but if we hadn’t sold it , we couldn’t have bought our next place which we were able to subdivide and make even more opportunities .

Also with opportunity we took , has cost us the opportunity to do something else .

our first subdivision. In Sydney tied us up for a couple of years meaning we weren’t able to buy more in Sydney and benifit from the boom . We looked at a house in west Pymble for the low 400’s which would be now with over 2 mill . We could afford it but were too busy

During our second subdivision , we say what was about to happen in Geraldton but were too financially committed to buy a few more cheapies at 60k ...

At every step we’ve taken or not taken there have been alternative options . In a sense it’s been reassuring knowing that the path we took wasn’t the only way .

Cliff

 

A good investor is always preparing for a downturn.

• They are continually taking out LOC's even when they have zero use for them.
  
• They are filling their offsets and never paying back their loans unless they're recycling.
  
• They are taking out IO loans if the interest differential isn't too big.
  
• They use LMI even when they have more than enough cash in the bank to do the deal.

Almost everything above needs to be done well, well in advance of a crash. Once you've bought the place, the financial markets freeze up, values drop, you lose your job, or serviceability rules change, you're up s--- creek. It's not that it's necessarily better to prepare in advance...it's that a lot of stuff simply cannot be done after the crash has already happened.

 

I should have bought up in the late 80’s in Blackett at Bolderwood Drive, houses were under 80k, but I bought unit in Blacktown for 104k instead and sold for 107 a few years later and after that it doubled.

 

It happens.

 

I have plenty of regret not buying each and every single property I could have in St Marys/Colyton/Tregear/Lethridge Park/Willmot all those years ago. Finance back then was soooooo easy to get as well and the prices well lets say they were cheap as chips.

I'm kicking myself. In hindsight its easy to say. At least we weren't whose whingers on Whirlpool forums still looking on from the sidelines.

 

I would add: paying off principal, even on your investment loans. This gives you buffers for the downturn, and allows you to refinance on to a lower repayment structure in the future. Using the good times to be stronger for the bad times.

 

Interesting - why wouldn't you keep money in offsets until it comes time to refinance / recycle? This is the bit I'm a bit confused about. Do you need to show banks a history of paying down the loan when it comes to recycling? Do they not like you just doing lump sum payments and quickly pulling it out again?

 

One thing that ppl forget is that when your portfolio reaches a point that refinancing to longer loan terms to another provider once your I/O term expires may not always be possible which means you will be stuck with that lender. Banks will not let you do I/O forever.

So if you've taken out a 25 year loan and had it on I/O for 10 years, well when its time to eventually go to P&I because the banks will eventually make you then your repayments will be HUGE!! Dont forget that even a 5 year difference on repayments on the loan term can add significant costs to your repayments. Multiply that by 10+ properties as in my case with a single lender well you could get yourself into trouble.

 

Nonsense, I have had IO loans for 30 years, I have a BoM portfolio loan for 17 years that expires in Dec 2049, I have refinanced 7 times with IO Loans, had 4 different banks . Just got a whole new loan 3 weeks ago. If you havent noticed interest rate have dropped, my interest rates have dropped 70%, rents have gone up 50% recently, have gone , trippled since 1997 more than that on older property. Yet my interest payments are a pittance compared to 30 years ago. With 90% LVR you are stuffed, you servicability is stuffed it is almost impossible to get high enough yeilds on LVR's that high to be sustainable it is hard to be sustainable over 60% LVR . One options is to get a job in a down turn if need be, I am not afraid of work and enjoy working , but it is a last resort all ways figured I would get a job if when I had to.

 

You're saying it's not possible to find yourself in a situation where you have no serviceability?

 

Not possible at all with any of the banks I deal with (i.e) CBA/ANZ/ING/Suncorp and some smaller lenders. Even Pepper Finance will NOT let you have unlimited I/O terms.

CBA for one will NEVER EVER let you have interest only forever. Even to extend I/O periods after 5 years it is extremely difficult. I have 9 loans with CBA mostly gotten pre APRA days. LVR ranges from 40% to around 70%. I cannot refinance anywhere because my serviceability on 9 loans these days would fall way way way too short (plus I added another 10 loans after CBA so total 19 loans) and believe me I tried like 6 brokers and many many online lenders.

Maybe your special and I dont know your entire situation but if you can get I/O for 30+ years I salute you. I have never heard of anyone else that can get those types of terms either.

 

Hi Jaybean,

In terms of recycling and the repayment history, that is a question for the brokers on the forum.

What I would say, is that with P&I you are extinguishing the debt, rather than just servicing it. That includes keeping funds in offset accounts.

Also, since the topic of this thread is how to prepare for the inevitable downturn, (which I doubt is imminent), then one of clearest ways to do this is to expand your net worth, and put some distance between the loan and the asset itself. This strategy comes at the expense of cash flow (and potentially lower future tax deductyions), but that is what the good times are for.

 

I think you misunderstand the concept, no one is special, no one said unlimited IO terms BUT once the period expires you can refinance with another lender and so on....
I have had only IO loans for the last 21 years investing into IPs. After 10 years with one lender I then refinanced to another lender and so on, so I agree with the previous poster. It all depends on your personal circumstances and situation and LVRs etc....
As yet I have had not one loan where I was forced to pay P&I really, so it is possible to have IO loans when switching lenders. I am currently again refinancing after 5 months when I refinanced in October 2020 as my broker recommended. I will be able to receive lower IO rates, more to pull out and to consolidate some split loans, again to IO for the next 5 years.
So that's what we mean.... you can continue refinancing to IO loans with other lenders as long as your financial situation permits that, really!

 

But I think what he means is if APRA rules have now made it such that you can't even service what you already have, then refinancing is not even an option.