Was your risk management sufficient coming into Covid-19 Crisis?

Discussion in 'Property Market Economics' started by Blueskies, 20th Mar, 2020.

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  1. Blueskies

    Blueskies Well-Known Member

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    This Coronavirus crisis, while a massive Black Swan event, has reinforced for me the importance of managing financial risk. You can't know things like this are around the corner but I know I try to be mindful of considering risk/exit strategy/diversification in all investment decisions I make without letting it paralyse me from taking action.

    Obviously many people have been hit for 6 that would have been considered in quite a safe position only weeks ago ago. I'm just curious for others on the forum coming into this do you feel that you have made good financial decisions to help manage your downside risk?

    Some general thoughts for me:

    Pros:
    - Jobs: I work for a multinational making consumer staples, my wife works for essential services, we have reserves of annual, sick and long service leave. We have transferable skills.
    - Properties run the spectrum from low income to blue-chip. Multiple properties help vacancy risk.
    - Share holdings invested in LICs and ETFs, reduced sector or single company risk, also 50% offshore which has helped with currency risk. 3 day clearing makes this a readily accessible source of emergency funds (compared to illiquid property)
    - Cash $150k safety buffer, have always accessed equity whenever available.
    - Super - last resort in severe financial hardship.
    - Wife and I are quite modest in our needs and could rapidly trim further if needed. No consumer debt, expensive car loans, etc etc.
    - Willing to work hard, if things hit the fan I would be the first to put up my hand to stack shelves at Woollies as the next guy.

    Cons:
    - Debt high, LVR at near 80%
    - geographical risk - all properties are in greater Brisbane.
    - borrowing capacity nearly maxed out and currently "fully invested" - minimal cash available to take advantage of current bargains.
    - My job is private sector, government would be better I think at times like this.

    Just the things that run through my head at a time like this. I think there are always unknowns, I could lose my job tomorrow, multiple tennants could stop paying, asset prices keep crashing etc but hopefully some of the decisions I have made to this point might help see us through.

    How are others feeling?
     
  2. The Y-man

    The Y-man Moderator Staff Member

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    I'm currently working as a casual at a Uni - more work than usual at the moment due to me having delivered online units before (as well as face-to-face) as we convert to online mode in a major panic. No idea for what happens later!! ....

    Luckily other half works in an industry that is critical at this time.

    We could *just* get by and continue to make all our loan repayments if ALL the rent AND dividends dried up..... (at least some of my rental income relies on big multi-nats, supermarkets, government departments and the ATO.... )

    The Y-man
     
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  3. The Y-man

    The Y-man Moderator Staff Member

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    Know the feeling - we were pretty much in a worse situation than that for the GFC - spent the whole 5 years after it just bringing the LVR down like crazy.....

    The Y-man
     
  4. Gockie

    Gockie Unicycle - get exhausted but never two tired Premium Member

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    Worse comes to worst, I’d look to sell the home. Roughly $2mill just sitting there! At a conservative 4% dividend rate, that would be 80k year income by doing nothing really.
     
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  5. The Y-man

    The Y-man Moderator Staff Member

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    Depends if prices hold though.... but $2m equity is damn impressive!!!

    The Y-man
     
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  6. The Y-man

    The Y-man Moderator Staff Member

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    Hang on - just redid the numbers - more rent reliant than I thought!! o_O

    If all tenants in resi went empty I need all the dividends and comm income I can get my hands on to stay afloat!

    If divs fall significantly, I'd then have the difficult decision of how much of the offsets (i.e. borrow money) I dig into vs selling shares off at 50% loss sort of thing....

    The Y-man
     
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  7. Perthguy

    Perthguy Well-Known Member

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    My financial risk mitigation is good. I have adequate buffers in place, good cashflow a relatively low lvr.

    The only change I would make right now is to switch my biggest loan from p&i to io to help build cash reserves.

    I have been following VAS for a while and would like to pick up a decent amount once the market is not so crazy.

    My biggest issue right now is sourcing toilet paper for the airbnb.
     
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  8. Heinz57

    Heinz57 Well-Known Member

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    Cut it too fine I think. Too much debt
     
  9. The Grinch

    The Grinch Well-Known Member

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    Sitting pretty good. In a full time job in the social sector and will not be out of work regardless of what happens ( work in youth homelessness and kids need someone to look after them).

    Have a ppor with very low monthly repayments and am positioned to pick up bargains as they present themselves. ( I live in cairns so the lack of tourisim will impact here quickly)
     
  10. FireDragon

    FireDragon Well-Known Member

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    I was planning to purchase a land to start a development project but stopped this idea due to the current situation . I need to make sure the cashflow is okay for the next 12 months. The commercial properties should be fine, but if there are large amount of residential tenant can't pay rent then I and probably my family members will need to inject cash.
     
  11. bumskins

    bumskins Well-Known Member

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    Dividends will definitely get hit and for specific companies maybe even deferred/cancelled. Has already started happening.

    You would have to be extremely unlucky for all factors to hit at once.
     
  12. albanga

    albanga Well-Known Member

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    I am comfortable with my position.
    Cashed out a while ago to ensure I had cash buffers. Permanent employee in IT with 20 weeks leave in the bank.
    Wife funnily enough also just started mat leave and receives parental payment which is well timed given she works in child care casually and her school shut down.
     
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  13. Waterboy

    Waterboy Well-Known Member

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    100% Cash

    Cash is King in these uncertain times.
     
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  14. Perthguy

    Perthguy Well-Known Member

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    Yes, except for the part where it's losing value.
     
  15. Blueskies

    Blueskies Well-Known Member

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    That is a great place to be at the moment, are you saying you are sitting 100% in cash right now? If so kudos!

    If so how did you get there? Was it a deliberate decision before this crisis started, or did you cash out when things started to go pear shaped? Either way, it is an envious position to be in. The long term data shows that you should basically be "fully invested" property and equities, which is where I find myself coming into this. But we are at one of those rare points where the best short term returns will be for those who are sitting on cash and gold.
     
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  16. Waterboy

    Waterboy Well-Known Member

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    Goldman Sachs and Mohamed El-Erian have been sounding the alarm even before the markets crashed.

    I will be drip-feeding my cash and probably take out a low-rate mortgage on my home in order to re-enter the markets when there's further clarity.

    During the GFC I know someone who loaded up on CBA shares and made lots of money. Kind of my inspiration.

    It would be difficult to find the bottom, but the idea is to cost-average drip-feed into the downturn with a longer-term view.
     
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  17. NHG

    NHG Well-Known Member

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    Nein.

    Doubled business between Oct-Dec.
    Left me with low cash reserves.

    I'm in accomodation, so have taken a hit of about 25% of tenants vacating in about 3 days.

    Had to take on a bail-out to keep cash-flow for the next 3-6 months.
    Irony was my growth looked amazing until last week.

    See you on the other side!
     
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  18. The Y-man

    The Y-man Moderator Staff Member

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    Ok latest re-calculations based on 2 more loans going to PI in the coming months:

    We could handle a drop of 60% in resi rental income and 60% drop in distributions/dividends from listed instruments (or some combination thereof), assuming unlisted comm props stay stable.

    The Y-man
     
  19. Sackie

    Sackie Well-Known Member Premium Member

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    Buffers are enough. Low debt. Strong cash flow from here and abroad. It's probably why I still have a good sense of humor and feel very optimistic for opportunities.

    But if this same crisis hit me 10,12 years ago, I'd probably be more stress tested.
     
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  20. Owlet

    Owlet Well-Known Member

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    Buffers in place
    Fortunately, I work in an essential service
    A significant amount of leave accrued
    (Friends and colleagues doing it tough)