If you're confused, uncertain and even frightened about the property market in Australia, you're not alone. Most investors feel that way. They also feel angry and even betrayed. During most of , property investors across Australia didn't fair too well, some couldn't sell their properties at the right price to exit, others couldn't refinance on a good valuation to get out of their existing mortgages provided by those defunct non-bank lenders.

Many developers couldn't sell their stocks or obtain proper development finance, and you name it. We've seen some relief, in the first few months of at the low-end property market due to the first home owner grant and lower interest rates.

We all know this won't last, especially when Australia is officially included in the 'Great Recession' by IMF.

I believe that in tough times you should revisit your strategy, purpose and assumptions continually - especially when you're experiencing resistance or frustration of any kind in the accomplishment of your investment and lifestyle goals. Now more than ever, it's especially important that you anticipate market shifts, control risk and create powerful strategies that move you in the direction you want to go.

Re-position your leverage level on properties The current recession is mainly caused by financial crisis, a good percentage of the economic growth and asset value have been contributed by over-leverage. Deleveraging across the world will see credit tight for many years to come, even after the economy recovers.

Hence we will see tight credit markets for at least another years if the IMF's prediction of the global economy recovery late is correct. You should consider at least 3 factors when you look at leverage: If you must stay at higher leverage, your income should at least allow you to pay down your mortgage principal on a monthly basis.

Because paying down your mortgage is similar to lending your money to the lenders. The lender is paying you the interest rate your mortgage is costing you; you have effectively become a lender. Lenders make more money than borrowers in a deleverage economy. Many people are concerned about lenders recalling their mortgages if they show negative equity. For most private property investors and homeowners, negative equity will not be the main reason why the lenders would recall your loans.

Lenders would usually recall loans when the borrowers fail to make repayments. However if you are one of those property investors with a very large property portfolio or run a business with credit facilities with the same lender, you may want to separate the business credit facility from your mortgages and reduce the exposure to a single lender.

This can avoid the unnecessary risk of your mortgage being reviewed by the lenders at an inconvenient time. How much is sufficient is quite a personal matter, but the general idea is: One thing worth mentioning is mortgage interest rates. Many property investors leave their cash reserve with their Line of Credit, because most the Lines of Credit offer the flexibility to not make any repayment as long as the limit has not been reached.

Line of Credit can potentially present a problem for you if the lender decided to freeze it due to a drop in your property value or simply lack of credit available. While this hasn't quite happened in Australia, it has definitely happened in other countries such as the United States. In such cases, you will lose your cash reserve overnight without warning, so the better alternative is a Redraw with an Offset account, and keep your cash reserves in the offset account.

Recession: What Does It Mean To Investors?

The aim of a cash reserve is not to cover your cash flow short fall forever, but only temporarily. Hence the strength of your cash flow has a lot to do with the length of the coverage. For example, if your cash flow is positive and very unlikely to be reduced, then you may want to consider a 6-month window for the worst-case scenario. But if your cash flow is negative or very likely to be discontinued, then you may need sufficient reserve to cover quite a number of years or at least to the point you can safely sell the property at a price greater than your mortgage.

Re-establish better income status Many property investors have been using low-doc or no-doc borrowing to acquire properties in the past, but this lending space has changed significantly since Overseas experience shows that it is possible that low-doc loans will be completely taken off the market soon, especially when there is not sufficient credit.

Lenders would lend to the best quality borrowers, and low-doc borrowers are considered lower quality than full-doc borrowers. Borrowers get into low-doc borrowing for many reasons, some due to employment status such as self-employed, others due to complicated financials, and we also see some borrowers simply couldn't be bothered to provide financials because the interest rates difference was quite small between low-doc and full-doc loans in the past. The trend is that low-doc loans will be at a higher premium if they are still to be offered in the future.

For property investors who are still actively acquiring properties, there will be financial benefit to get full-doc loans rather than low-doc loans in the near future, hence looking after your income status can become important in the next few years. We have seen situation where a client who is currently a contractor being unable to refinance his loans from low-doc to full-doc, and some of his low-doc lenders have gone out of business.

For him to take advantage of the current lower full-doc fixed interest rate, he needs to become a full-doc borrower again, which means he needs to go back to a full-time permanent job position with less income. However the mortgage repayment savings created from the refinance will substantially outweigh the loss of his work income. Re-work your cash flow with contingency Living off equity is one of the reasons people invest in properties. Many property investors have selected good growth properties and have been using the equity to cover expenses.

The potential issue with this is that we may get into a spending pattern that can be a bit out of control if we don't pay attention to it. When property stops growing for a while and finance is hard to get, we may get into a negative cash flow position with no end in sight.

Many property investors told me that they couldn't figure out where they have spent the money, but they only noticed that their money in the Line of Credit is disappearing faster than they anticipated. Let's face it, most of us only act when we really need to, so there is no need to beat yourself up if you haven't taken the time to manage your cash flow carefully, but I do think this is the time to start doing it if you haven't already done so.

To manage our cash flow, we need to be clear about our income and expenses, and make sure that income is greater than expenses if you want to have positive cash flow or any surplus. Because we always tend to spend what we make or more, we will need to treat the surplus almost like the highest priority expense, so that you guarantee to have it. The Superannuation idea is to 'force' everyone to put aside money we can't touch, because most of us cannot be relied upon to do so, especially when we have a family and the financial responsibility is divided between family members.

When responsibility is given to more than two people, no one is responsible; hence a group of two or more people looking after money will usually have little money left.

Putting aside your surplus or profit before you pay any other expenses is probably the safest way to ensure positive cash flow, and you can always adjust your remaining expenses according to your income. It is not how much you earn; it is how much you can keep. A system usually consists of a set of rules and policies; a system is to be followed strictly during execution.

Taking the time to define these policies can help you to review what has worked in the past, and what may work in the future, especially with all the changes happening in the market place.

We all have friends and family who are not doing what we are doing, that is perfectly fine in my view; people are entitled to their preference and opinion, and we are not here to change them without invitation. I would just be more careful at whom I am listening to and whom I am getting advice from when it comes to property investing.

Henry Ford once said: It is also very easy to hear the not-so-good news and why you can't make money from properties, they are plenty of them around during recession. It will take some effort to find those who believe the opposite, but it will be worth your effort. This article was written by Bill Zheng, founder of Investors Direct investorsdirect. You could use your super to buy property - Find out how. Do you need help finding the right loan for your investment?

When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs. Just fill in a few details below and we'll then arrange for a local Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs.

We'll even help with the paperwork. Plus and appointment is free. Nobody force you to buy a house and rent it. Renting is a necessity for the tena We are gearing up to renting out a property and will not What is a PAYG Withh Hot spots, market news and investment strategy advice. Boost Your Portfolio Invest With Your SMSF Mortgage Help Free Downloads. Can I afford an investment property?

9 Effects of the Recession on Families and How to Cope

Repayment calculator Retirement savings calculator Stamp duty calculator Capital gains tax calculator Negative gearing calculator SMSF how much deposit? SMSF how much can I borrow? Special Reports Current Issue soft copy Back Issues soft copy Back Issues hard copy.

A good property investment system should have policies in at least the following areas: Get help with your investment property Do you need help finding the right loan for your investment?

We value your privacy and treat all your information seriously - you can check out our privacy policy here. How soon do you want to buy? Free suburb reports View all suburbs.

Please enter suburb or postcode. Please enter the correct suburb or postcode. Latest Forum Posts How to Get Rid of Bad Tenants.

Unusual Ways to Make Money

Should I subdivide and build? Your rights and responsibilities as a la Videos How to create profit Property Research New Investors Investment Strategies. Select Right Away In a few months Later this year.