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Diversify your defences against inflation with this well run property company
Questor share tip: this company chooses its properties carefully and carries very little debt

When interest rates are minus 8% why do you want to carry little debt?

7 thoughts on “Eh?”

  1. Erm, because if there’s a massive economic downturn or your company goes bust thanks to the government being unable to keep the electrons flowing in the grid, for example, you might not want a giant millstone around your neck when your income suddenly takes a nosedive.

  2. If the underlying asset is volatile in value, you don’t want lenders making margin calls and forcing you to sell your assets at the bottom of the market?

  3. In addition, the dividend yield comfortably exceeds 5pc.

    This is what one needs to look at. I have shares in a propery based fund (non UK), the price has barely moved in ages because prices on the Continent are not so volatile, but the dividend is a nice little tickle.

  4. “When interest rates are minus 8% why do you want to carry little debt?”

    You’ve still got to find the cash to fund the interest payments though. If your income is stagnant despite higher inflation (as it is for many today) and interest rates are rising due to the higher inflation then its quite possible for a heavily indebted borrower to run out of cash to service the loans despite the loan dropping in real value.

    The ‘borrow loads and let inflation wipe out the loan value’ trick only works if you can get all the way through to the other side unscathed. Its quite possible to run out of cash at some point and be bankrupted.

  5. ““inflation-linked rent reviews”.
    Might be fun to watch. From a distance.”

    Well precisely. The contract may say ‘Rent goes up by inflation’ but if the tenant doesn’t have that amount of money then you aren’t getting an inflation proof rent, you get nothing as you don’t have a tenant any more……..

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