Money money money

But what about the potential downside? Risk management? What if prices fall?

 

Yields that cover all costs, so not reliant on growth to move forward.

 

And if yields fall as well?

 

What if I get run over by a bus tomorrow. Best stay under the covers and not do anything to fully reduce the risk. Oh wait, the ceiling could come in.

 

You can reduce the interest risk by fixing for a few years
To reduce vacancy risk ensure tenant has invested a reasonable amount of $$ in the property
To reduce rental decrease look for hard ratchet
Reduce principal to reduce price fall risk
Pm if you want more info

 

Yeah I'm just wondering if any other investors consider the downside or if most just blaze away and grow huge property portfolios regardless

 

People have different risk tolerance levels, you'll pick up on here the different strategies being used. Everyone's situation is different though, different salary levels, partner working, cash buffers. I personally don't like IO and usually pay P&I if it's an ip I expect to hold for a number of years. It means I have usually have lowish lvrs and can build up extra equity or still hold on if interest rates rose.

 

The properties I bought a few years ago have gone up 60%+. One of my more recent purchases has been valued over 20% on purchase price. I think my PPOR is worth 25% more than what I bought it for (could be more or less, obviously). These are all in... yep, you guessed it.... Sydney. Not a mining town. I think I don't have a risk of them ever falling in price to be cheaper than what I paid. Plus my yields are good.

Perhaps if you're worried just sit tight with what you have, let time grow the capital value (Brisbane won't get any cheaper long term?)

And when you are comfortable and have more equity, buy again. Sure you'll lose some capital gains by not jumping in sooner (assuming there's demand and the market is generally rising just like it tends to do over the long term) but you can take more time to learn and have a better SANF.

 

That's the key point. If I had a six figure salary I'd be buying blue chip properties and then using the equity generated over time to purchase some cashflow properties and balance out the portfolio and hold it middle-long term and sell off or develop. In reality I'm constrained by a below average income, lack of equity, and serviceability so atm I'm just paying down debt on my existing middle ring properties and trying to increase my salary. It's not a sprint it's a marathon though and the last thing I want to do is get greedy or over-leverage myself and be forced to sell off properties due to not being able to hold them.

PS- Nice intro Joel. You're doing really well.

 

Negative gearing would be one reason so a nett loss is incurred.

Im aiming for at least 3 but 4 is better.

Most would or should consider the downsides.

Its prudent to consider worse case scenarios with all decisions.

My basic litmus test is "will the family still have a roof over there head and food to eat if this all goes to *****"? If its yes and everything else lines up including gut instinct I go for it.

Sometimes though, you need to just put it all on the line

 

If your property has a special desirable feature it will also reduce the vacancy risk (pretty well all of my last 29 property purchases have seaviews with no properties between the water and mine)

 

Not worried, just curious. I've bought two properties, both 20km from the CBD now, both cash flow positive. It's time to go closer, and on a low income a lower yield concerns me a little. Unless I live in it.

 

Ahh. Sorry, just read you're in Adelaide.
(Sorry, been reading many more threads about Brisbane recently).
I personally like the south side of Adelaide. But yes, closer in you may find more growth/better tenants. Anyway... think about the infrastructure and amenities. Schools, transport, jobs, hospitals, universities etc. This will pull people to want to buy or live somewhere in particular. This will make it less risky. For yields... i'm not going to comment on that. You'll know Adelaide better than me. (Assuming you are still planning on buying another one there).