Recession proof Property Portfolio

Yes me too. Property investors are moochers though aren't they and don't really add much to society.

 

For me, a recession proof portfolio is a portfolio that can survive and prosper under the following hypothetical ;

What if you knew in advance that resi capital growth over the next 20 years would be zero, and rental inflation over the next 20 years would be only 50% ? With the benefit of that knowledge , what strategy would you employ to reach a 6 figure passive income, anyway ?

For me, the answer is - cash cows and debt reduction. Purchase an asset base that allows the use of leverage with that is not at call (resi property) and generates sufficient cash flow to pay for itself P&I, so that it's always deleveraging ...slowly yes, but steadily. I call them cash cows. You may prefer to call them something else. Whatever you call them , they are the foundation of what is effectively a dividend reinvestment scheme via property , that delivers a 6 figure annuity income in 20 -25 years, come rain, hail, or shine...or growth...or not

The key is, the strategy doesn't rely on growth to make money. It doesnt rely on IO to keep its head above water. Don't get me wrong- we love growth and welcome it with open arms.... we just don't need it to retire well when the properties wash their own face. Just about every other strategy does.... and that's why none of them are especially recession proof . They have been very successful strategies for many here ....no doubt about it ...but it's equally true to say that there hasn't been a recession in 30 years so no one can really say with any authority how low yielding properties reliant on neg gearing and after tax money to prop them up, would survive a bad recession....

I wont ever need to ask my portfolio that question....

#cashcows
#recessionproofordamnclosetoit

 

In the 1930's depression properties fell about 67pc from their peak.
https://www.google.com/url?sa=t&sou...Vaw07rP8zUQ2ZbRM6W9fQk8pm&cshid=1566832892162

 

The best recession proof portfolio is a portfolio of only land with substantial improvements owned by the tenant (leasehold)

In the event the leaseholder does not pay the rent the improvements can be sold to recoup the arrears .

 

I wouldn't think there is recession proof, as opposed to recession resilient.

That would also encompass all areas, rather than just the property portfolio.

If you create multiple income streams, and have a cash buffer, then you will be able to hold on for longer than the typical portfolio.

I've seen it happening among the more active investors last few years. They pruned the dead weight during the peak. Invested into cash-flow deals. Diversifying, not just from residential to commercial, or across different countries, but also into different investment types.

Shares, ETF/LICs, businesses like gyms, food, import / export.
I heard by having income from 8 different areas (property, health, hospitality, etc), you increase your chance of being resilient in the worst depressions to 50% (feel free to elaborate if you understand this principal).



It's just straight out of cash-flow quadrant.
Have a foot in different quadrants and you can grow leaps and bounds.

 

I agree broadly, and it's why I said "ordamnclosetoit" There are obviously limits to what you can do. Anyone can come up with a nightmare scenario that would cause the sky to fall in for even the strongest of investors. For example, if every property was vacant for a year, and you had no income from employment for that same period, and a series of massive expenses hit at the same time, draining all your savings.... and prices collapsed 50% overnight , and a credit crunch followed and lenders called in swathes of resi loans , you'd just have to roll up into a ball and accept that someone upstairs just doesn't want you to make it through I mean, you'd just be toast

But barring such a series of disasters like that all happening at the same time , there are prudent measures one can take to make things incredibly robust /recession ******ant

I see each property as a small business...

Each property / business needs to be able to run itself P&I so that it does not depend on IO funding to be affordable to hold onto to. Holding costs under P&I terms became a very serious threat to the viability of many portfolios post APRA , and just because rates have fallen and there has been some repayment relief, people around here seem to have quickly forgotten that P&I remains a real threat. Rents aren't increasing at all,...in fact in many markets they are in decline due to the massive unit pipeline coming to market , and if prices start to increase off the back of the lower rates and floating assessment rates, yields will deteriorate even further as debt goes up and rents go down.... and one day the P&I piper will come a calling again, and it will be worse next time because yields will be even poorer than now ... the difference when that comes around next time will be that all the RBA's powder will be spent . I feel over recent weeks that this very recent , very clear lesson about the importance of cash flow management within a portfolio and how P&I must be considered in all decisions, has already been forgotten by many here. Its important NOT to forget it though. Be smart enough to heed that lesson.

Each property./business needs to be able to survive prolonged periods of vacancy as well How long? for me, it's 13 weeks ( 91 days) Because I have NRAS sitting within multiple properties, I am allowed 91 days vacancy before any of the NRAS credit becomes affected. That provides a HUGE safety net that other resi properties with prolonged vacancies just don't have. I can lose 13 weeks of rent and still finish up CF+ , is my point . Cant get that anywhere else.

Each property /business also needs a buffer to be established when first purchased. It should form part of the purchase plan. Each of my clients is advised to borrow and set aside an additional 10K per property. This ensures we have an additional safety net on top of the NRAS credits or Dual Occupancy income.

How far further you go beyond these measures can be debated all day long...but for me, these are the minimum requirements . If each property/business operates as a cash cow. ( whether NRAS or Dual Occ or a combination of BOTH as have available now in Goulburn right now, generating over 18-20K CF+ ) that covers P&I , and if you have a 10K buffer per property/business on top of that , you have made each property/business #recessionproofordamnclosetoit

 

IMHO, to grow your Net Worth in “leaps and bounds”, the only two quadrant worthy of a foot (we only have two anyway) are the two on the RHS.

In reality, there is only one “quadrant” on the RHS.

To me, a business owner is an investor and their biggest asset is their staff.

 

Agree.

Last night I relayed some words of wisdom I took from a past conversation with you, to my fiance.

Instead of working on our business, then looking at our investments after work, we are chunking it together as 'wealth creation', freeing up our post work time for family, health and fitness, and other creative pursuits.

(I hope I took home the message you were relaying).

Really grateful for the chat.

 

Spot on!!!

It took me years to come to that conclusion and you got there in a couple of minutes .

 

RBA’s grim warning about house prices

 

Interest rates dropping means we will continue to see AUD continue to fall, 60 AUD????

 

Shouda asked me.

 

Agree with Euro comments.
It’s the age of cashflow.
For me to have sleep at night factor, you would need to
- drop your LVR on a resi portfolio to 60-70% so one can stay close to neutrally geared if Land taxes/maint costs/vacancies rise.
- keep cash in offsets to pounce on opportunities + adjust your LVR to suit your tax position. PEOPLE FORGET CASH IS AN ASSET CLASS.
- add some serious cashflow for resi debt reduction AND SERVICEABILITY improvement though shares, private lending, or comm property / syndicates / REITS.

In a nutshell start treating property more like any other business. Rather than the hope and pray model of the 90s and 2000s. It needs to pay for its upkeep and generate profits that can be reinvested for future acquisitions .

 

No that is far too short
I want a minimum of 9,000 years just the Guinness Brewery lease
Reasonable lease period ...people will always want to drink beer

Only problem was the rent was fixed for 9,000 years ! :-(


On 31 December 1759, he signed a 9,000 year lease at £45 per annum for the unused brewery


Guinness - Wikipedia

 

Harvey Norman kicks off $173m capital raising to weather a recession

Seems Gerry Harvey is not as complacent as the average propertychat.com.au spruiker.

He is raising 173m as a war chest to protect against recession and to pay down debt.

"I'm very conscious of the fact that we're going to have another recession or depression one day," Mr Harvey said in an interview with The Sydney Morning Herald and The Age.

The retail veteran predicted around 10 to 20 per cent of retailers would go broke in a sizeable recession, and he said he didn't want Harvey Norman to be one of them.

"I can guarantee you that at least 10 per cent of those businesses out there at the moment, and at least 10 per cent of the population, if a recession comes will be in the ****," he said.

I think non-complacent property investors running a "business" (leasing property) should do the same.

 

Given that the HVN share price has tanked 16.25% over the last three years, I wouldn’t put too much credence in what Gerry is doing/saying .

I wouldn’t be surprised if the company needs the money now to cover some shortfall .

 

In data out today, business inventories plunged 0.9% in the June quarter, worse than expected.

Retail sales are out tomorrow, followed by national accounts on Wednesday.

It's possible the Wednesday GDP print could be negative. Recession could be here faster than people think.

 

Can’t wait. The good times are nearly here.