How do you change your investment strategy to suit your borrowing capacity?

By November 14, 2018Financial Planning

With the tightening in credit and the reduction in borrowing power, many investors capacity to invest has been adversely impacted. For example, an investor who planned to invest in two properties worth say $750k each might find that when it comes time to purchasing the second investment property, they can only afford to spend say $400k due to a contraction in borrowing capacity.

This begs the question, what do they do?

As I see it, they have four possible options:

  1. Reduce the budget for the next investment
  2. Invest in a regional or outer-suburb – so you can still get a house for example
  3. Consider other investments such as a regular gearing strategy into a portfolio of low-cost index funds.
  4. Wait to see if things change – will credit loosen up? Will your financial position strengthen? Will expenses (school fees) disappear?

I discuss these options in the below video and explain what approach I think is best.

Click here to download a transcript of the video.

The theme of my message is twofold:

  1. You must NEVER compromise on the quality of your investments. Only quality assets will produce quality returns.
  2. Typically, there’s more than one strategy to build wealth. A quality share portfolio is better than a sub-quality investment property.

An astute investment strategy should be robust and flexibly enough to navigate inevitable market challenges such as a tight credit market.