NSW What is you risk management or exit plan for Sydney?

People have made a killing in Sydney...now there are signs of a peak...what are your exit plans based in the following facts?

1. Yields in Sydney are sub 3% in a lot of suburbs...obviously if you bought in early this has less of an impact. Myself...I bought in early so yields are over 10% on the original purchases in Sydney and 9% on CC
2. Interest rate rises.....how will you manage this? I have fixed for 2 years (70% of loans) at 3.89%
3. End of I/O only period...and increase in repayments. I have manage to extend the I/O period to date..will be harder in the future

Things to think about.....to preserver the wealth built to date.

 

Why exit. How do you know sydney can't hit 1.5m median in the next 3 years?

 

It could...but I don't it....the current NSW govt will look to introduce some sort of foreign tax to take the sails out.....the bigger jump the harder the fall.

I am not selling...but my places have gone up 300-600% on the original purchase prices.

 

No reason to exit. Bought years ago. Everything is cashflow positive by a large margin. Some still have further value add potential on top of this.

All exiting would do now is trigger a nasty capital gains tax bill.

 

Correct.....for the ones that can hold. I would have a massive CG bill.

The issue is people who do not have the CF position...a large land tax bill, IR rises, expiry of IO periods and major repairs will send some to the wall.....will be interesting....

 

I may sell my former ppor and pay off new ppor in Adelaide but no other plans to sell anything. Still have 3 or so years on most IO periods

 

It's going to make things tough for people and probably going to blindside them, as you mentioned @sash about the example of the $200k interest only loans and you times that by 5 to 10 properties.... Hope people have enough buffer or a big enough salary to weather the storm. As for me, I am focused on building a bigger buffer and still having the fundamentals of keeping a basic lifestyle by forgoing anything that is not a necessarily.

I still have faith in my properties and my strategy does not involve any selling in the near future.

 

I guess it depends on where people are at in their own property cycle including say the ratio of non-deductible PPOR debt to equity gains and cash flow provided by IPs. There may be an argument to retire some PPOR debt (if you got some) by selling an IP, to improve borrowing capacity / buffer-zones for the next deals for the next cycle or next market.

However, for some who may have large portfolios, with plenty of cash flow, it may not be an issue and they may wish to draw out equity to buy a Porsche, and for others it may be about shoring up cash, reviewing loans, and instigating other measures to provide protection for a bumpy ride ahead.

Everybody's situation is different, everybody has their own risk profile, and everybody's assets are different. However, it's a very valid point that @sash makes because we are not so sure of what lies ahead over the next few years especially with some differences in the global environment at the moment.

 

Fixed interest rates
Cashflow positive Portfolio
Ability to reno to drive yield/value
Diversification - 70% portfolio outside Sydney.
Cash buffer
No PPOR debt.

 

Yep...most people are like frogs....they sit in water as it is boiling....and don't notice till it becomes boliing hot...by then....it is too late...make boats while you can and prepare for the flood....

 

Good analogy and I agree with that. Some of the investors like to brag about the number of properties they have instead of looking at the hard numbers of their returns, capital growth and how much it's sucking them dry each pay packet. I see some of the figures on people and they have experienced very little returns for their IPs and experienced next to nothing capital growth in x about of years, nothing to write home about.

 

Spot on...I see that all the time...it is not only the number of properties but all the CG you have had over the years. Low LVRs at the top of the cycle is important....I am at 43%...I would like this at 35%...which I think is achievable with some growth...in the next 2-3 years.

I am also carrying significant cash reserves. I am positive to the tune I will service all costs without touching the cash reserve...but wanted to be sure. I also fixed my rates on 70% of loans at 3.89 to 3.99%....so this will also help.

I look forward to the next step of the property cycle in Sydney......

 

1. Sitting on less than 30% LVR
2. Refinanced all my loans last year on a strong discount of 1.6% and 10 year IO
3. Diversifying into other property markets (primarily Hk, looking st Tokyo and NYC)
4. Diversifying into precious metals
5. Run my own equities fund and I will short the heck out of AUD, Australian banks, real estate firms, REA etc and the soon to be listed Domain.com if Syd starts crashing
6. Hugely positive cashflow (some properties are debt free anyway, I didn't even bother to borrow when I bought)
7. Cash is king

 

These answers are all wrong.
It simple - the answer should be to diversify from Sydney and transfer all funds into Brisbane

 

Is anyone shorting the banks yet?

 

No plan to exit Sydney. just gonna hold and let some the IPs grow out of their nappies.

Most of my loans are fixed 4-5years already with a buffer in place to weather rental declines, unforseen costs.

 

For me it was easy. As a value investor I got out of Sydney a looooong time ago (too early but such is the curse of the value investor).

 

That's what I actually did. Brisbane and Gold Coast.

 

Agree entirely!

 

cash is queen or king....remember this one BIG TIME when markets turn