Recession proof Property Portfolio

Discussion in 'Investment Strategy' started by MTR, 24th Aug, 2019.

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  1. MTR

    MTR Well-Known Member

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    So what does a recession proof property portfolio look like??
     
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  2. kierank

    kierank Well-Known Member

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  3. Wukong

    Wukong Well-Known Member

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    @kierank nice one! Closed it the moment I saw the URL.
     
  4. kierank

    kierank Well-Known Member

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    :D:D:D:D:p:D:D:D:D
     
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  5. willair

    willair Well-Known Member Premium Member

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    Over 60,Unencumbered ,all the titles are held in the bank and you don't care what happens..

    Then Recessions are statistically unlikely ..
     
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  6. jazzsidana

    jazzsidana Well-Known Member

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    Inverted yield curve along with many other signs slowly showing up.

    Looks like rates are going all the way down.

    Cash/ cash flow/closer to neutrally geared portfolio will be able to survive the storm I guess.

    Bigger question is - will property ever see similar kind of returns if rates go down to 0?
     
  7. Peter2013

    Peter2013 Well-Known Member

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    This is perfect timing. I have been wondering the same thing.

    For me, what is not clear is the cash buffers required.

    As a household, experts normally say you should keep 3 to 6 months income in cash during a recession in case you lose your job. I have started to cut back and save, and should be close to this towards the end of the year.

    I have been talking to a few fellow property investors about what to do with our IPs. I understand tenants lose their jobs during a recession. Landlord insurance should cover any lost rent while we work through evicting them. But, landlord insurance won't cover us if we can't get a tenant for 6 or 12 months. Therefore we must hold cash to pay the mortgages on our IPs.

    What cash buffers are you targeting?

    What can you expect during a recession?

    Some of my friends also expect a contraction in the pool of renters. As the economy get tight and renters lose their jobs, they move in with family, friends or other share homes - hence there is not the need for so many rentals.

    For example, Australia has been in per capita recession now for three quarters. Look at what has happened to vacancy rates since the start of the per capita recession:
    https://sqmresearch.com.au/graph_vacancy.php?postcode=2000&t=1
    (You can also see what happened during the 2008 GFC. Some say this recession will be worse, as we have not had a recession for 28 years - hence 2008 GFC wasn't recessionary)
     
  8. sash

    sash Well-Known Member

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    In Sydney...it would be affordable 1-2 brm walk-up units units near rail with rents of 350-450klms within 15 klms of the city. 1 Brms need to be within 5 klms of the city...
     
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  9. highlighter

    highlighter Well-Known Member

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    Seems like a good thread after today's trade war escalation. Oof.
     
  10. MTR

    MTR Well-Known Member

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    Cash buffers?? Dont work too well if market keeps sliding, for example Perth market in some areas have not seen any growth or worse gone backwards since 2007.... Pretty tough gig

    I guess Keep LVR low one way to mitigate this
     
  11. Peter2013

    Peter2013 Well-Known Member

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    The cash buffers are to pay for the mortgages, if we can't find anyone to rent our properties and there is no rent coming in.

    Yes, rents are likely to fall as tenants play landlords off against one another, but I figure interest rates will be zero next year, so hopefully rates will fall faster than rents.
     
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  12. MTR

    MTR Well-Known Member

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    0 interest rate? I dont know ?? one can hope
     
  13. Peter2013

    Peter2013 Well-Known Member

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    You never know, they might even go negative and the bank pays me for holding the IPs!!
     
  14. mikey7

    mikey7 Well-Known Member

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    I wouldn't bet on this. Not in Australia.
     
  15. sash

    sash Well-Known Member

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    I would be more worried about a recession in the USA rather than Oz
     
  16. Peter2013

    Peter2013 Well-Known Member

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    I was a joke (hence the two !!). Clearly, I wouldn't need to save a buffer to service IP mortgages if banks started paying me.
     
  17. Peter2013

    Peter2013 Well-Known Member

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    Property in Oz and renters are going to be effected by household balance sheets.

    At a household level, Australia is already in a per capita recession. We have been for three quarters. Renters are already being squeezed with no wage growth, surging energy prices, child care etc. I believe this has more relevance than what we are making from Iron Ore or LNG (if anything for LNG)
     
  18. sash

    sash Well-Known Member

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    Yes in some retail segments like david jones...meyer...and car sales. But essential spending is holding up. Unemployment is also okay.

     
  19. Guest

    Guest Guest

    One built of gold.
    upload_2019-8-24_22-47-27.png
     
  20. Gen-Y

    Gen-Y Well-Known Member

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    I always wonder what happen to those IP investors that have multiple properties like 10+ properties fair in a recession down turn?
    Example - Investor earning is $180k per year on their own job. 10 x IPs at $300k. Let's say they were able to secure a loan at 4.00% IR which is about $120k interest repayment yearly.
    The mortgage repayment would almost inline their own after tax income.
    What do they do if 2/3 of the properties remain vacant?
    Just asking the expert - what are the possibility to unstick the scenario.