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The ACCRUE stress test: Your key to financial confidence

There are all sorts of situations where you check your resilience under pressure. It could be around looming work deadlines. It might be a major life decision, or perhaps it’s overcoming fear and achieving a long-term goal.

In these moments we measure our ability to soldier on. It’s an opportunity to demonstrate our mettle in the face of adversity.

And besides, as the old saying goes – it’s no fun if it’s too easy!

The other important facet in stress testing is realising your limits so you can make a reasoned decision on how, or indeed whether, to proceed.

And so it is with successful property investment.

In March 2020 when the pandemic hit, there was a small wave of panic selling. A number of property owners felt the system was about to collapse. Many of them, in fear, sold off their assets quickly and at a discount to build a war chest of funds. Others also drew on their super fund holdings fearing a drop in the share market and the need to have cash on hand. I suspect most would have sold without having first assessed their financial resilience.

How must they feel now? They acted hastily and have missed out on a historic run of growth in both shares and real estate that could have saved their hides.

They are the investors who now live in regret.

Here’s the stress test we apply to ensure our clients remain calm, focussed and informed when trouble arises.

Financial stress test

You must first comprehend this – property investment is a game of finance.

If you don’t understand how far you can safely extend yourself financially, you will either have an underperforming portfolio or, worse still, go bust.

Property investors make most of their wealth by leverage off equity to keep building their portfolios. The more you can safely borrow the more, or better, the assets you can buy. You then get to compound the growth as your investment plan progresses.

But none of this strategy works if you go broke. If your financial safety net falters and the bank comes knocking, you are in for a world of hurt. The path to financial independence is littered with failed landlords who borrowed more than they could chew.

So, well before you get yourself in too deep, determine what you can afford to borrow and service.

ASPIRE Accredited & Qualified property investment advisors firstly do a thorough financial assessment of each client. We look at the budget, run the ‘Profit and Loss’ and check the balance sheet. Through this process, they discover exactly what’s left to devote toward investment.

After the numbers are apparent, the next step is to stress test the interest rate.

We are living in a time of record-low rates. We have a generation of young investors who’ve barely seen an interest rate rise… but they will occur in the future.

To allow for this, we factor in a potential doubling of the interest rate in your numbers.

Could you survive financially if your interest bill doubled? More to the point, how long could you feasibly hold on before you would be forced to sell?

The next element is based on the income generated by your investments. We look at what would happen if your rents suddenly fell by 10 per cent. While rents should increase over time, that’s not guaranteed, so you must be prepared.

If after these scenarios your balance sheet remains in the black, that’s a good start.

Life stress test

While things like interest rates and rent returns are market-driven and beyond the control of us mere mortals, there are personal elements specific to each investor which must be allowed for.

These will include things such as your stage in life. Are you a young investor with time on your side and a defined career path? Are you a couple planning for children in the future? Have you hit the mid-life point where the kids are young adults, and you are at peak earning potential?

These things play their part in your financial wherewithal and must be allowed for in the investment plan.

We are looking at two key factors here – future income and outgoings.

Firstly, what is the resilience of your income base? We do the numbers looking at what money comes into the household and how that could change. How long could you survive if a breadwinner were to be made redundant?

With outgoings, there are even more considerations. How might your costs change over your investment lifetime? Will kids bring school fees, clothes, food and other added outgoings to the budget? Will you need money to buy/rent a bigger home?

This is a very personalised stress test, so using a professional advisor is crucial. They can walk through the outcomes and check whether your plan is survivable.

An investor stress test lets you know when to soldier on and when to cut and run, and what scenarios you should avoid in the first place.

The benefits are obvious. Not only will you sleep better knowing you’ve got a stay-or-go plan, but if the worst were to occur, you can make the right moves and avoid living in regret.

Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!

Visit or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.

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