Recession proof Property Portfolio

Ain't no such thing .. if there was you wouldn't have to ask

 

It would need to provide cashflow positive returns from day 1 or implementing strategies that cover debt, or keep low do rent covers debt

 

You would need tenants who can pay rent, some wont be able - you would probably have to accept lower rents and longer vacancies, therefore draining your reserves - If you have to sell you would be selling in a buyers market and maybe selling at a lower price than paid for property.

If I had several properties I would be thinking of selling 1-2 in the present market to make sure I would be able to cover expenses in the coming 18 months which look like being rocky ...

 

In a recession people will rent...and the low-mid and mid level properties become very desirable to rent. Also developers have a very difficult time getting finance on developments, in this scenario...rents actually go up. You scenarios is very unlikely.

I pay about 200k in interest per year....at an everage rate of 4.2%. Most were fixed between 3.79% and 4.29%..at an average rate of about ..and coming off early next to mid 2021. My net debt (no including offsets as no interest is paid) is 4.5m. I am selling 3 places at the moment when this happens my debt will drop to about 3.6m...and then increase by about 450k as construction loans are drawn down. I reckon I would have about 130k net without sweating (I have assuming about 30-40k in renos). This is without me selling any of my developments which will further increase my figures. So if you structured correctly a recession should not take the wind out of your sails.

 

Interesting...that is exactly what I am doing...I am technically retire...though I don't feel it. Lots going on...

 

Not all markets are equal, it would also be dependent on product, where you purchased, whether you diversified, lvr
If all your properties were in Perth probably going to be pushing **** up
Hill

 

IMHO you are selling at the right time ... As to rentals? maybe tenants will think this is the time to buy with interest rates so low and in a buyers market, different conditions at play in this recession ...

 

I agree. The demand for rental properties will go up as people (especially FHB) will be too scared to buy plus anyone in financial difficulties will sell to get out of their mess. They need to live somewhere, so they will rent.

Rents will either stay the same or more likely go up.

 

Apparently, the last time Australia was in recession was in the early 1990’s.

During that time, we bought our current PPOR (big debt), bought our first IP (more debt), started our second business (our first from scratch, so income was low and definitely not reliable), ...

But I can’t remember it being in recession (no trauma for us) but I can remember Expo88 (a couple of years earlier) very clearly.

We are in a far stronger financial position now than back then.

I am not worried at all.

 

Don't forget to keep some cash for all of the oppourtunities that arise!

A recession is a two way street....

 

Im sitting in a busy mexican restaurant watching the line outside of uber eats drivers grabbing food and icecream for their buyers. When the uber eats stops i’ll know we’re in a recession.

 

I think we're not even close to a recession.

For me, investing to create wealth should be the front and centre objective that should shape how my portfolio will look like. Then with buffers and other risk measures in place to manage any major macro changes. I wouldn't let the fear of a recession be a guiding criteria for how I strategise my portfolio make up.

 

Really? We are already in a per-capita recession, no increase in growth on the horizon...

I think recession "proof" is an interesting term. Maybe "resilient" is more appropriate. Introducing a degree of diversity will help - not all segments of the economy will decline at the same time or the same amount (or necessarily at all for some specific segments I guess).

Additionally, a portfolio can continue producing income, even if it's value declines for a period - true for investment properties or shares.

For me I would say a recession resilient portfolio is one that can sustain itself through economic downturn without eroding the income it produces.

Cheers,
Inertia

 

Yeah tbh I'm not worried.

 

Yes 1 brms in areas like Darlo and Sydney are gold.

Interesting what you are saying about the terraces....I guess in good areas they are also good. But the issue is the lazy capital sitting around....the ones in Sydney return about 3-4% on the value...and the other killer is land tax.

For example lets say you have a $1m terrace in Newtown and it rents for 700pw. That is $36,400 per year. Assuming it is fully paid out....you will need to pay about 8.5k for expenses. By the real kicker is assuming you have exceeded the land tax threshold you will pay about 11k in land tax. So that asset returns you about a princely sum of 17k net. That on the asset value value of $1m is 1.7%......add to that renos...every 10 years...and your profits dissapate quickly.

This is happening on some of my older stuff. thus the reason to move some of them on....

 

I woudn't buy one personally but 1 bedders used to be scoffed at. Not anymore. From a rental perspective, they fly out the door (unless 2 bedders are similarly priced).

 

Some interesting perspectives. @sash, I agree that the main downside to holding terraces is that you are stuck with lazy capital. However houses in the inner or middle ring suburbs offer much scope for investment upsides. If the house has reasonable development potential then the cost of land banking is often a more than reasonable trade off for the lazy equity.

Also, where there are 3,4,5 plus bedrooms your rental income is derived from multiple sources which has a number of benefits. Share houses are always going to be more in demand during economic downturns and I'd wager that that would be the case during a recession as it is generally cheaper to rent in a share house with others than renting on your own. Anyone with investment experience with this type of property during our last recession? I was still in school so my input in that regard is theoretical.

Another benefit of larger houses with many bedrooms is that, in my experience, they experience rental growth that far exceeds other properties and especially 1 bedroom units. I suppose strong rental increases are more viable and palatable when the increase is shared between 6-8 people. Investing in these low rental yield sorts of houses is a bit like investing in CSL. If you look at CSL's current yield of 1.31% then on income it looks pretty unpalatable. However if you were wise enough to buy them when they floated for $2.31 (or even a little later when they were $23.10) and last year they paid out $2.48 in dividends you are not going to be too concerned about the 1.31% dividend.

I suppose my point is that buying these sorts of properties during a recession might not be the best move if your decision is based primarily on yield. However, buying this sort of stock early enough before a recession offers what should be a decent recession buffer.

 

Yes in balanced portfolio it definitely has its place.

I also would acquire these in a recession because they will be harder to sell..as with any property.

 

Yep, I was just thinking that.