Property Investment Articles
Hi there Salena Kulkarni here from Phoenix wealth group and in today’s short video, I just want to talk to you about risk reversal and specifically what I see to be the biggest risk in the market at the moment for property investors.
So I was talking with a client the other day about risk and how as an investor, it’s really important to not, only be aware of them, but as much as possible to mitigate a lot of those risks.
Now when I look at what’s happening in the current environment, I would say that one of the biggest risks in the market is actually in the banking sector, so the ongoing tinkering and changes to the way that the banks are interacting with investors is actually one of the biggest risks that exists right out there out there right now, particularly I think the thing that worries a lot of investors is the fact that a lot of banks are switching loans for investors to principal and interest repayment
Now a lot of people when they are assessing a property have no issue with sensitivity analysis and will often say well what if interest rates go up, what if growth rate isn’t as high as predicted, what if rents drop all those sorts of things, but the one thing that a lot of people don’t look at is well what is banking policy changes to such a degree that it just puts too much financial pressure on the investment itself, so in a lot of cases if you’re holding a lot of investments and they are all switched to principal and interest loans, the impact on cash flow could be significant.
So it’s really important that you are if you are taking a portfolio based approach near investing, you are looking at your portfolio from the viewpoint of what is banking legislation change and say for example, tomorrow they suddenly required everyone to who wasn’t holding seventy percent loan to value ratio or lower, to start to kick in more funds now it’s not to say that that would happen because I think that would cause sheer panic in the market, but I do think it’s really important if you are looking at acquiring investments at the moment, there’s plenty of great is out there in there are still ways that you can find opportunities to outperform the norm, but what I would say to you is take into consideration that the banking sector is changing their calculators they are making it tougher for investors and you’ve got to be able to weather those storms.
So the first thing I would be saying, is to try not to look for investments where you can massively gear right now, also if you’re in a position where you are heavily geared look at ways and strategies to reduce your gearing because the more heavily geared you are, the more of a red flag you’re going to be within the banking environment than someone who says, for example, has a good amount of equity in each investment.
So I hope you found this useful as always, please feel free to leave any comments, or get in touch with me if you are interested in understanding where the property investing is a good fit for you or whether your portfolio could do with some shaking up.
Salena Kulkarni from Phoenix Wealth Group.
(+61) 2 6100 3688
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