Managed Funds Margin Loans - Is it worthwhile?

Discussion in 'Shares & Funds' started by Lam Thieu, 15th Oct, 2007.

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  1. Simon Hampel

    Simon Hampel Founder Staff Member

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    Have a look at my Market Drop Before Margin Call spreadsheet
     
    Simon Hampel, 18th Oct, 2007
    #21
  2. Rob G

    Rob G Well-Known Member

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    Depends on the volatility and cost of 'emergency funds'.

    Work out the real cost to you of a margin call, i.e. transactions, lost opportunity on diverted funds etc.

    Sorry ... I exaggerated the property volatility:

    According to the 'Progress Leader', Surrey Hills jumped 45% in the June **QUARTER**, while Hawthorn East dropped 18%.

    If you are talking of swings +/- 20% then it does not make a 75% LVR look very comfortable for an IP.

    Especially if you are capitalising interest at 9% or more.

    You will need to work out if the upward trend is still present in all that noise, or trust in your fundamental analysis.

    Cheers,

    Rob
     
    Rob G, 18th Oct, 2007
    #22
  3. Simon Hampel

    Simon Hampel Founder Staff Member

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    I wouldn't be reading too much into stats like that ... the only way they can make any measure of value or growth of an area is to compare actual sales data to data from previous periods. Now in most suburbs there are different types of properties, each worth somewhat more or less than the others depending on features / location / age / improvements, etc.

    For example, if a suburb is undergoing gentrification, you tend to get a lot of property going up in value quite quickly as people buy into the demand area and add value by renovating etc. Meanwhile a suburb right next door may already have been through this process, with all the best properties already being bought, and now the only ones left are the cheaper houses on the main roads. These sales will have the effect of dropping the average sale price for the area - not because the suburb has dropped in value, but because the types of houses being sold are different.

    It all may sound theoretical, but I have observed it actually happen on several different occasions in markets I was watching ... it is actually quite a fun sport watching a wave of gentrification move through an area over a period of time :D

    Don't pay too much attention to published suburb value data - it can be very misleading !!!
     
    Simon Hampel, 18th Oct, 2007
    #23
  4. Rob G

    Rob G Well-Known Member

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    Voigstr,

    Don't forget that marketable securities are more liquid since they are smaller parcels with easier transaction costs.

    So it is easy to realise a small part of your portfolio to get funds for a call.

    Hey, you could weed out some of the dogs and improve the overall quality !!!

    Cheers,

    Rob
     
    Rob G, 18th Oct, 2007
    #24
  5. Rod_WA

    Rod_WA Well-Known Member

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    That sort of stuff really ****** me off. Banks list a rate 'pa', but then calculate the interest daily using Rate/365. That's why the term 'bankers' is rhyming slang.
     
    Rod_WA, 19th Oct, 2007
    #25
  6. Simon Hampel

    Simon Hampel Founder Staff Member

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    It only matters if you choose to capitalise your interest - otherwise you are actually only paying the quoted annual rate.
     
    Simon Hampel, 19th Oct, 2007
    #26
  7. Rob G

    Rob G Well-Known Member

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    I agree Sim.

    However, even watching prices in my own housing estate I have observed similar houses sell below what I considered a modest reserve, and others sell 30% above expected.

    Even if you don't refinance, you have some discretion on your borrowing level and may be tempted to go to the limit if you believe the market has risen.

    Cheers,

    Rob
     
    Rob G, 19th Oct, 2007
    #27
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