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  • What If ???

    What if I bought a 200-250k house with a 10% deposit and then house prices fell 20% odd

    What would happen?

    I want to get into the market quite badly and have wanted to for several years. I'll go in with a 10% deposit from my savings but all these what if scenarios pop up in my head and I get a bit tentative to pull the trigger on buying a rental.
    "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right"

  • #2
    wait until you can go in with a 20% deposit and the risk is only a 10% fall

    there is NO hurry...

    imho
    have you defeated them?
    your demons

    Comment


    • #3
      ENP,

      Everyone feels like they are in a rush when they are buying property #1. But afterwards you realise there are so many deals in the market that you didn't need to rush in the first place.

      After I purchased (and rushed) the first property in Kingsland I found four more excellent deals that I wanted to buy but couldn't settle on. You only have one shot every 6 months even buying 20% below in this market so make that one shot count.

      Cheers
      AMR

      Comment


      • #4
        Originally posted by ENP View Post
        What if I bought a 200-250k house with a 10% deposit and then house prices fell 20% odd

        What would happen?

        I want to get into the market quite badly and have wanted to for several years. I'll go in with a 10% deposit from my savings but all these what if scenarios pop up in my head and I get a bit tentative to pull the trigger on buying a rental.
        ENP,

        You are falling for the classic mistake of bottom fishing (waiting, waiting waiting for market bottom). You need to get past indecision and have your finances approved and in place for when the deal of the century comes along (they come along all the time in this market).

        If you are a long term buy and hold investor (10+ years) what does it matter of market prices go down after you buy? Buy below market value (to give buffer) in an area with good rental yields (tenant selection) that cover your costs (cash flow positive).

        10 to 20 years down the road these price movements will seem like a little blip on the radar.

        Shane

        Comment


        • #5
          If prices fall you should be confident you bought on good numbers/ cashflow then simply wait till market recovers.

          Comment


          • #6
            ENP.... I think you are now finding out, that theory is one thing, practice is another.



            Lessons I have learnt..
            • Yes, it takes guts to invest!
            • You need a plan of attack....your own "how-to" manual and only you can decide on what is important
            • Being a PI involves a lot of research...
            • this is work
            • It takes a whole lot of discipline to stick to your plan
            Oh yeah.....the most important part of being a PI.......
            It takes a whole lot of discipline to stick to your plan

            Discipline Discipline Discipline

            I can't emphasis this aspect enough!!

            And as AMR pointed out...when he had bought his first property.....he promptly found four more that he couldn't buy.....banks like lots of income and if you don't "earn" it in a job, then you had better have some really high yielding properties if you want to buy more.

            It takes work to find these properties
            It takes discipline to stick to your plan's requirements...eg as to the yield you require
            It takes guts to follow thru' and sign "your life away"

            Oooops, I'm repeating myself

            I think you should be getting the idea of what it takes
            Last edited by Ahar; 06-12-2010, 08:30 PM.

            Comment


            • #7
              Originally posted by ENP View Post
              What if I bought a 200-250k house with a 10% deposit and then house prices fell 20% odd

              What would happen?

              I want to get into the market quite badly and have wanted to for several years. I'll go in with a 10% deposit from my savings but all these what if scenarios pop up in my head and I get a bit tentative to pull the trigger on buying a rental.

              Oh yeah....to answer your question.



              If you bought with a 10% deposit....
              • you would probably be paying a higher rate than if you had a 20% deposit.
              • And IMHO this woiuld require a higher yielding property to make it doable
              And if the prices then fell 20%..............you'd be screwed

              Seriously, the nice friendly folk at the bank would phone you and ever so pleasantly suggest you make an immediate and quite substantial deposit into your mortgage accoiunt.....and of course you'll have the dosh and cherrfully agree to this

              Comment


              • #8
                Hmmm.

                If you come off a fixed mortgage and your IP is worth less than the mortgage, will the bank let you refix? What about letting you stay on floating?

                Would you be able to refinance with another bank? I'm expecting not.

                Comment


                • #9
                  Originally posted by Ahar View Post
                  Seriously, the nice friendly folk at the bank would phone you and ever so pleasantly suggest you make an immediate and quite substantial deposit into your mortgage accoiunt
                  Even on that small a loan when you're meeting repayments?

                  Comment


                  • #10
                    Originally posted by One View Post
                    Even on that small a loan when you're meeting repayments?

                    Errrr....a 90% mortgage isn't "small" even if it's 90% on a 50k property.

                    And as for meeting the repayments.....let me tell you a story that was told to me.



                    Once upon a time there was a PI who had a good sized clutch of IP's....a baker's dozen no less.

                    All was well with the world....our PI felt like the king of the castle.

                    Then one day "the market changed"....prices began to decline and the LVR increased to the point where the nice friendly folk at the bank suggested he make a quite substantial deposit into his mortgage account.

                    Alas....he didn't have the dosh.

                    Never mind, said the bank, just sell a property
                    But woe....the sale price didn't reduce the LVR enough.

                    So he sold another, then another and another etc etc etc till he was no longer the king of any castle....all sold, done and dusted


                    Now the important points to this "story".....
                    • it is true....as told to me by a real estate agent...happened to his "friend"
                    • His "friend" never missed a mortgage payment
                    • the folk at the bank are never friendly.....they don't have to foreclose to make your life a misery...they just insist you sell "or else"

                    Of course this might have been a "one off". And I'm sure it'll never happen agian

                    How lucky do you feel?

                    Comment


                    • #11
                      Originally posted by One View Post
                      Hmmm.

                      If you come off a fixed mortgage and your IP is worth less than the mortgage, will the bank let you refix? What about letting you stay on floating?

                      Would you be able to refinance with another bank? I'm expecting not.

                      I've heard of more than one person who couldn't refinance because of a too high LVR.....think it was reported in the paper, or was it property talk??

                      These people have to sell....even if it's less than what they paid. Banks are a wee bit risk adverse, ie, cautious at the moment.

                      As for refinancing with another bank....as you said, "I'm expecting not"

                      Comment


                      • #12
                        So if they came knocking on my door, I wouldn't really have the money if I bought at 10% deposit as all my savings would be tied up in that deposit. Is it then better to wait until I have a 20% deposit?

                        This will take me another 2 odd years to save up to 40k+ (20% deposit) including the 20k I already have since I'm saving there or there abouts 10k per year.
                        "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right"

                        Comment


                        • #13
                          ie look for something you can afford at 20%

                          and don't sweat if it takes time

                          act in haste

                          regret at leisure
                          have you defeated them?
                          your demons

                          Comment


                          • #14
                            Originally posted by ENP View Post
                            This will take me another 2 odd years to save up to 40k+ (20% deposit) including the 20k I already have since I'm saving there or there abouts 10k per year.
                            That probably wouldn't be such a bad thing, I don't think many folks are investing based on rampant capital growth in the next two years.
                            Most seasoned investors seem to be expecting a slight decline in values over the next 12 months and a flat market for a while after that so if you can get the same property in 18-24 months time for roughly the same price with twice the deposit it's not the end of the world - all you lose is the positive cashflow you would have made in that time (which with only 10% deposit may not have been that high anyway).

                            I guess it depends on whose crystal ball you are looking in.

                            cheers
                            Matt

                            Comment


                            • #15
                              Some random thoughts on your aproach ENP

                              Property is a store of wealth.

                              It can increase wealth but if you have no wealth to store, it requires high leverage/high risk.

                              You can trade houses to generate cashflow and capital. I would say that is best left to experts in the current market. But then I am risk averse and dont have a track record in trading.

                              Trading houses is like trading other stuff, (Cars, furniture, doo dads etc). Just that houses are the biggest stuff people usually buy in their lives.

                              So why not practise trading other stuff and building up a deposit much more quickly.
                              This would teach you about trading, teach you about cashflow, teach you about business, reduce your risk, and get you to your 1st IP more quickly.

                              Why do you want to get into IP?
                              How will it help reach your goals? What are your goals? If you have a clear idea where you are going and what you need to do, then making the decision to purchase will be easy. But this involves understanding the financials in detail way in advance deciding what to buy.

                              Comment

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