SMH Money- Family Finance 23rd February 2018
Want to know more about FIRE and how to avoid getting burnt?
Sylvia Pennington interviewed Peter Horsfield about the F.I.R.E. (Financial Independence Retire Early) movement to find out more.
The risk of borrowing
Earning sufficient income from assets to cover your expenses is a worthy aim but those who try to get there too fast via aggressive gearing may come a cropper, should circumstances change unexpectedly, financial adviser Peter Horsfield warns.
“It’s great when the markets go up but markets don’t go up in a straight line and the bottom line comes down to cash flow,” Horsfield says.
“Your tenant walks out, they change the regulations and you can’t get the tax deductions you’re expecting, markets don’t go up…you’re throwing good money after bad.”
Young people on modest incomes who borrow for multiple properties are at particular risk, Horsfield believes.
“They may be playing with fire,” he says. “All they’re seeing is rising markets and using debt to leverage that.”
Everyone wants to be a millionaireMy partner just bought a property form a very young investor who had several investment properties all mortgaged to the hilt, Then the prices started to drop and he had to sell his properties before he ran into negative equity. My partner got a great deal though on what is now her first property so good for us.
So your warning Peter about not over committing when you are young and have only limited income has turned out to be prescient. Well done.