Whats your LVR (Loan to value ratio) and are you worried?

[markw1]

Whats your LVR (Loan to value ratio) and are you worried?

How much debt do you have in total in property?

[donkey]

Why would someone ask for this personal information without volenteering it themselves, their own debt etc, perhaps they are a property vulture trying to find out distressed investors to pick up cheap properties with the information they gain.

[outspoken]

My question is how do you work it out? i.e what value do you put on your properties? because after all, in todays market valuations are mostly meaningless and your properties are only worth what someone is prepared to pay for them IF you decide to sell them.

Then that raises a whole other question, do you have to sell or not?

[Clark Kent]

Why would someone ask for this personal information without volenteering it themselves, their own debt etc, perhaps they are a property vulture trying to find out distressed investors to pick up cheap properties with the information they gain.

Its not really personal info if you dont know the person or where they live. I dont think PI on this site are suddenly going to swoop from the nest and buy a cheap property.

Besides the majority of PT investors would not be distressed investors.

[BusyLizzy]

Perhaps the best thing is to set up a survey with multi-choice responses for a range of LVR's.

Markw1, let one of us mods know if you want to do that, and need some help setting it up. (Although I seem to recall that we may have had one of these in the last couple of months? Do a search...)

[k1w1]

I'm worried that these crappy northerlies will stop me going out fishing in the boat.

hth

[markw1]

Why would someone ask for this personal information without volenteering it themselves, their own debt etc, perhaps they are a property vulture trying to find out distressed investors to pick up cheap properties with the information they gain.

Donkey, I have actaully volenteered this info on another thread incl debt, and no I am not a property vulture.

Yeah sounds good if mods could do something like this.

[CJ]

About 60% based on latest rates valuations accross the rental and the PPOA. Rental has about 90%.

Why worry? Its sunny outside.

[NZGEMS]

Well as it was pointed out, it is a matter of what it really is worth, I have just adjusted some of mine (I have a portfolio list for the banks, and my own interet too of course) the ones I adjusted were ones I had recently talked to agents or someone in the know about, most I put down, one up but it was wrong to start with on there, the rest we just devalued on there a flat 10% across the board.

I used to be at 20% gearing, now I think it is probaly more like 50% realisticly with the way the market has gone.

Robyn

[exnzpat]

I like this question. It’s a good question.


Loan to Value Ratio provides a rough indication of market exposure on an individual. If the number could be quantified for all borrowers, as an average, it would be pretty telling – my guess is that the Loan to Value Ratio across the board is very high.

The higher the number -- the closer to the edge we are.

Let’s use a hypothetical investor and his latest property QV: let’s say the total QV was 2 million and he borrowed 80% or $1,600,000 therefore his Loan to value ratio would be 80%

As property values slide the loan amount does not change, and therefore the borrower is pushed closer to edge.

If a newer QV is taken and the property is now valued at $1,700,000 the new ratio will be 94%. If the new QV came in at $1,500,000 the ratio would be 106%.

What people don’t understand about mortgages is that when the bank gave you the loan in the first place it actually calculated your Loan to Value Ratio (and keeps track of it to this day). If they lent you $1,600,000 to purchase $2,000,000 worth of property then they probably calculated the Loan to Value Ratio, your income (or expected income from the property), and your total debts. If the bank was comfortable with an 80% Loan to Value Ratio (a 20% difference) then all is well and good -- as long as you maintain your income and you debt levels. However, the danger comes when that 20% difference (in this example) is infringed upon. The easiest way that this can happen is when your property value falls. Your bank will force you to maintain that 20% difference all the way down to the bottom of the market. Simply put: they will demand a cash deposit to maintain that difference during the life of the loan.

One way to offset this property value fall, and extend the difference, is to offer lowered interest rates.

The ramifications of this: is that interest rates are not being lowered to allow investors and home buyers to jump back into the market, but rather, they are being lowered to offset this difference.

The lenders know that most people don’t have large sums of cash sitting around ready to hand over to the bank to keep their loans serviced -- and so -- are buying time by lowering interest rates and keeping the credit cycle moving.

I know how this is going to end. Do you?

It’s funny, so many of you spent thousands of dollars attending seminars on how to make money from real-estate – but none of seem to understand how to lose money from real-estate! Here’s a hint: it’s really easy!

[k1w1]

Sorry, but the bit I don't understand is this:

If I owe $80000 and my value is $100,000 (80% Loan to value ratio), what difference does the interest rate make.

Whether the rate is 1% or 50%, my loan-to-value is still 80%.

[CJ]

Sorry, but the bit I don't understand is this:

If I owe $80000 and my value is $100,000 (80% Loan to value ratio), what difference does the interest rate make.

Whether the rate is 1% or 50%, my loan-to-value is still 80%.

My guess:
The banks also look at serviceablility. The lower the interest rate, the easier to service. IF a bank thinks you can service, they are more likely to allow you to use some of the 20% buffer they allow.

[tricky]

What people don’t understand about mortgages .........
However, the danger comes when that 20% difference (in this example) is infringed upon. The easiest way that this can happen is when your property value falls. Your bank will force you to maintain that 20% difference all the way down to the bottom of the market. Simply put: they will demand a cash deposit to maintain that difference during the life of the loan.

Are you a banker?
I thought RR (who is a banker) indicated that this doesn't necessarily happen.
Or are you trying to scare people?

[Tucker]

No it's just because he has made a loss and so thinks everyone else has to/is going to.

[exnzpat]

No, just stating a fact. That’s how it works. If it were any other way nobody would be foreclosed on. Think about.

Now, there is one other way around this difference disparity and that is communication with your lender. Work out some new deal – they may, of course, ask you to unload some debt. So, if you own 3 houses they may ask you to sell one. The only problem here is that as the market falls you are actually better off holding on to the asset instead of selling. The only problem here is that if your income was to change…

As a kid I use to play a game…it went something like this.

The good news is: the man is sitting in first class.
The bad news is: the man falls out of the aircraft.
The good news is: there is a haystack beneath him.
The bad news is: there is a pitchfork in the haystack…

…and so on, and so on…

Borrowing money and lending money is pretty much the same thing.

There is only one key element to understand with property investment – debt management.