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We’ve spoken before about the merits of the following property/ wealth strategy:
- Buying assets that will appreciate in value
- Sensibly financing the purchases; and
- Developing a strong team of advisers
For our thoughts on buying assets that will appreciate in value, wind back to episodes #24 (the fundamentals don’t lie) and #25 (how do you select the right investment property?).
Today we’re talking about what it means to ‘sensibly finance’ your purchases.
The key points are around not overextending so you can comfortably afford the mortgage commitment, and keeping a ‘cash buffer’ to protect you against lost income and/or unanticipated expenses.
Given the high entry, exit (and potentially holding) costs associated with real estate, selling assets prematurely tends to be the #1 way people lose money from property.
Sometimes forced property sales are a reality of life (think deaths, divorces, etc.), and therefore a low loan ratio is another protection mechanism borrowers can have in place.
Once the asset gets sold, a low loan ratio means the debt can be comfortably repaid, and then the surplus cash can be appropriately distributed. (if there is insufficient equity to repay the debt, then clients would need access to other funds for such purpose, otherwise the consequences could be dire)
We discuss all these ideas and more in today’s show!
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The Long Property Show provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Nothing in the Long Property Show constitutes legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
