Safe as Houses

Just before the GeekDinner I was thinking about somebody (ex-friend of a friend kinda thing) who recently lost pretty much everything.. a whole string of properties included. He now pretty much spends his days crying. It’s messy. I used to think this guy was very wealthy.. though I knew he had questionable ethics.

If there is one thing we learnt in the last six months.. it’s that there is something wrong with the way banks score and trust lenders.. especially property speculators. There is something generally wrong with the way banks “create” money, but that’s another story.

Banks allowed this guy to heavily gear his property portfolio because they could again in theory borrow against the collateral he provided.. which was actually just loans on top of loans. A big card house.

A few months ago most people would have said this guy was a smart investor, but it turned out that his “assets”, which looked so good on paper were a major risk.

If it’s too good to be true..

Remember kids, try not to do what all the other kids are doing.

2 thoughts on “Safe as Houses

  1. I think gearing is fine as long as you do it conservatively. People should only do it if they will remain in positive equity after gearing with their current and new investments combined. Some people do crazy stuff like take out a full loan for a property with costs (like a 105% loan) and use their current property (which is probably in negative equity to begin with) as collateral. I think you’re quite safe if you put down a decent deposit (at least 20%) and make sure that the rental income is close to the bond repayments.

    I guess I should shut up, everyone knows this, right?

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