Pre-2015 investors and post-2015 - PC

There seems to be more and more of a 2-tier set of posters and postings in PC - those who have a decent portfolio under the old (pre-mid 2015) rules for finance, and those afterwards.

Unfortunately I don't see many of the new-growers being able to copy the methods and results of the past 10+ years into the near/middle future given the changes. So those with 4-5, and more, IPs will possibly be the unattainable (or less easily attainable) group - the "old school" perhaps.

Fortunately, many of you are amazingly helpful and already providing thoughts on tactics for the next years (or longer) for those still growing - Thank you!

It's getting to be more of a chore to read posts and have to determine whether they are part of the old group who haven't realised how much has changed for accumulation, versus being in the old group but appreciating that times have changed. But for those who understand and help, your posts are worth it.

 

I don't think there's that much difference. The newcomers can still do well, they just need to:
- get their investing team (broker, ba, pm, accnt) on point
- buy sensibly into stuff that makes money (preferably manufactured imo)
- have breadth in asset base for when the tidal wave of growth comes.

Come to think of it, I don't think this is much different to previous; perhaps more calculated and strategic

 

Key point right here ^

 

I think I've heard this every 6 months or so since jumping on SS from 2006/7.

 

In 2025, you will see someone saying the same thing about the '2015 new-growers' who actually took action.

 

The rules have definitely changed, but what I think it will come down to is that you can't borrow as much today, so the outcome will take longer.

For some that will mean instead of 20 years to get there it might take 25 or 30. For others employing more aggressive strategies what once took 10 years might take 15. The strategies don't necessarily change, just the time frame in which they can achieve the desired outcome.

I'd expect that this will lead to more people employing more aggressive and likely riskier strategies. This could lead to a larger number of people crashing and burning, but it also potentially means opportunity for those who pick up the pieces.

 

Yeah. The cries of "it's all different now!". No it isn't - same ole same ole - nothing to see here - been there, done that.

 

This is mainly a financing related issue. The boom has made APRA take a closer look, but now they have i'm not so sure they'd simply turn their head again once it slows down - so here's how finance has changed.

There won't be too much of a difference for the vast majority, most people would fall into both categories except for a few investors who are well and truly past their 'post 2015' borrowing ability.

But there will be a very real impact for some - that should be openly acknowledged and understood rather than brushed under the rug with the 'it'll pass' attitude. Sure, it might. But it is more likely to stay than go away.

Its really targeting those investors that have built substantial portfolios with relatively smaller income sizes. Portfolio size will be more linked to income than before. In 2030, assuming the same landscape today remains, anyone under 35 years of age with a 10+ portfolio in standard buy and hold assets yielding standard rates - they'd need a far greater income than 35 year old whose done it today.

What will change is:

• There is now a very real serviceability wall. In the past, it literally was a very distant prospect. I've got a few sophisticated clients nearing number 20 with $5mill+ figure portfolios on reasonably standard incomes. Well groomed lender choice, appropriate refinances and restructuring got them the last handful (the hardest ones). Can the same be done today - no chance. They'd still be able to get part of the way there, but if they were at property zero and trying to get to the same end result, the banks simply wouldn't let them. They'd need to do it differently, most likely considerably slower. Different strategies will be required and it will be a slower burn to get there.
• Stories about someone on 50-70k purchasing their 12th property with no cash buffers and standard yields - not going to happen anymore. You can have the best broker in the world - a well structured and honed in finance plan of today is very different to that of last year. There's no getting around in, we're not fraudsters, we operate within the rules and manage to make the most of them by using well honed investment/finance strategies to optimise whats already there. Making the most of them can get you well beyond what one bank is willing to offer, but it can't stretch the servicing wall so far into the future that it doesn't really exist.
• Those that are past their new 'wall', will need to proactively manage risk management in advance. If you are someone with 8+ properties on <100k in income, you need to ask the question 'how will i extend my interest only periods when they expire?'. They'd also need to assume that they'd fail the serviceability calcs and won't be able to refinance.
• APRA simply won't want investors continually refinancing I/O terms and gambling that their debt will deflate over time. They've now made this harder and have indirectly made extensions more difficult. ASIC may come over the top in coming months/year and make it even more difficult. Most likely some of their portfolio would be with AMP, NAB, Macquarie and a handful of lenders who previously used actuals. All of which require a full reassessment today. Westpac/CBA will likely move to it over time - so you'd need to prepare for it.
• Assuming that all will be rosy again in 5 years is NOT a prudent plan in my opinion. Buffers, potential to deleverage, are plans.

Cheers,
Redom

 

Goal posts have moved, you just have to keep running in the same direction for a little bit longer

I'm sure those paying 10%+ interest rates not so long ago were begrudging their successful predecessors but I know a few that simply took it on board, did the best they could do and actually did well. Many didn't even bother.

Admittedly my first reaction as a new investor was "oh fiddlesticks*, it'll be twice as hard as before when the money was flowing for everyone else" but realized it's par for the course, stuff like this will always happen and have to remember it's up to the individual to make the most of a 'bad' situation. This too shall pass.

Best thing to do is ensure you're as attractive to the bank as possible by doing things like increasing serviceability or maybe lowering your LVR.

The same basic principles apply now as they did 10 years ago (actually realized this when I was reading a book from 2004 and the figures were off but the advice was still rock solid).

*Apologies for the coarse language

 

The APRA changes have made a big impact (enormous for those starting out and/or not on massive incomes) but those with desire will always find a way to make it work.

I reckon it'll encourage a lot of ambitious investors to simply earn a LOAD more income (through employment, business etc) in order to clear the finance hurdles and tougher lending policies.

 

Old guard, New guard, Mud guard...whatever, just roll with the punches.

 

At the end of the day, banks are responsible to their shareholders to pay ever increasing dividends and for their share price to go up. They can't make money if they don't lend - that's the business they are in.

Credit tightens and credit loosens. Rules from one day get changed the next day. Banks are not the only lenders in town. People with a goal and on a mission, always manage to overcome obstacles.

This too shall pass. (just my opinion)

 

Nothing's gonna change my love for you (property)...

 

People say the same thing with the share market, that it has changed etc. They say this every time they can't get what they want. Change is the norm though - markets and rules never stay the same.

In the past we had high interest rates, much higher than the 7% buffer rates that are post APRA. This change in borrowing capacity happens all the time

The game is the same.
It's only there are different factors affecting the change but the result is the same.

Dedicated long term investors will keep investing (slowly) and growing slowly their portfolio and asset base.

People who think it's just a quick buck will think the "game is over" and they will walk away until they see the long term investors have still made money while they sit on the sidelines.

There are many markets in this world and opportunities everywhere. These are first world problems!

 

The thing is, you actually need the quick buck crowd (or the herd as we refer to them) to actually make money in property with capital gains. The hard part is putting in the prep years ahead of them so your portfolio is in a position to take advantage when the boom rolls around. It shutting out all the negative talk and putting up with tenants in the years before when the market is going sideways or down that is hard and when a lot of people sell out and give up on it.

 

The APRA changes are nothing compare to investing pre-GFC and post-GFC. I was investing pre-GFC and all I had to do was walk in to my local lender manager and ask for more money. He was dishing out low-doc loans like they were going out of style. GFC hit, funds dried up and for the first time ever I was refused a loan. I have found servicing and lending criteria a lot tighter since GFC, but that hasn't stopped me growing my portfolio. Something to note is that my loans ended up being on-sold to a dodgy lender and I was paying an average 9% interest across the portfolio. I'm now paying low 4's, so even though lending criteria is a lot stricter, those loans are a lot easier to service at half the rate!

 

I wasn't really around then but completely agree with your post.

Its much easier now than in the late 80s. Financial deregulation, sophisticated funding markets have definitely promoted leverage.

I was more referring to the servicing calculators of recent history vs the servicing calculators going forward in stating that purchasing 10+ properties on relatively standard incomes would be increasingly difficult.

Investors will definitely find a way if their strong in their purpose and willing to make it work. Sometimes they'll need to adjust the timing of their plans a little and accept that an overly aggressive approach may not be feasible as it has been in the past. It doesn't mean you can't still do what you'd want to, but you can't simply bet on it being exactly the same as it was before. It isn't.

I've said this throughout PC:
1. Rate increases will pass. Thats obviously temporary and very much a tool to slow down the market and 'take the tops of booms'.
2. Serviceability adjustments - will they pass? In my opinion this is far less certain.

 

Thanks everyone for the comments.
It's heartening to hear what you think the future can be.
It is interesting that those who have replied are ones with long experience on the ground and desire to help new people like myself (not to say there aren't those with experience who have't replied!).