For those of you who are worried because you are carrying debt on property, I share my perspective on the impending doom that Covid-19 has wrought upon us.
Just remember, people, that banks lend on closer to 6:1 mixed median multiples (median house prices: median household incomes) in New Zealand. They appear to be up to 12:1 but banks don’t lend unless you satisfy at closer to 6:1. You need to be able to debt service at around double the interest rate you're borrowing at and amortize over 25 years, or you can’t borrow.And property yields are still good cashflow-wise, when you consider the alternative of shares in turmoil, and cash in the bank. (I'm not saying go buy property, I'm saying yields off bricks and mortar are still attractive.)
I say don’t panic. It's going to be a rough ride. But ask yourself what's it's worth in 5 years, 10 years? The answer to this question means: do less, and don’t panic. Wait for bargains. Get lines of credit or cash reserves in place, to fund harder times. Protect your liquidity and weather the storm.
Caveat:
But, if the banks are allowed to tip over, all of the above changes. Myself, I can’t see governments allowing Australasian banks to roll over; they are too profitable and fundamentally sound long term. But hey, anything is possible at present.
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Watch for doomsayers. They are the guys that never borrowed a dollar and believe debt and property are the root of all evil. They will be slapping themselves on the back as people going to the wall lose their shirts. They predicted this right? But then every 10 years they are right for about a year. Meanwhile everyone in property knows it has its ups and downs, and they sell at the top and buy at the bottom. But the doomsayers think this is evil, and assume we are not smart enough to work it out. Only they predicted this downturn, only they know what to do. Meanwhile a whole bunch of guys and gals get richer riding the ups and downs as contrarian investors.
In the meantime, stay safe, and follow GRA on Facebook for regular updates.
GRA's services are top notch. I took their property course online over COVID, and then I went to them for a second opinion on some property tax advice I'd received that didn't sound quite right to me. They set me right and saved me from a massive IRD bill. After that I moved over to them full-time. They've given me ongoing sound tax and asset planning advice, and I greatly appreciate and value my annual review meeting with my accountant. I can't speak more highly of GRA in looking out for my best interests.
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