Thought I might share my experience from a seminar I attended last night on property investing. It was organised by a local accounting firm which ultimately promoted a property advocacy service.
There main thrust was that negative gearing provides better returns than positive cashflow properties if you use their strategy which is only buy within a 10km radius of a capital city CBD. Their stats suggested that properties in this area double every 7-10 years. So while there are higher outlays, negative impact on your pocket, with a long term view and the compound effect these properties will generate a far higher return than positive cashflow properties in areas where capital growth is much less. They then outlined how the avarage Joe can use the equity in their house to get into this investment strategy.
An example they gave was to only buy one property per year for five years and assuming you didn’t buy again, assuming you only used interest only funding and assuming you bought in the $250k to 300k bracket, in five year you would have assets of $1,794k, debt of $1,452k and new found equity of $342k. Hold these properties for another five years then the figures are property of $2,576k debt of $1452k and equity of $1,124k and net income of $38500. These figures grow of course due to the compound effect.
It was interesting to go to and gave me a new insight into negative gearing which I had basically discounted. When I asked some questions regarding positive cashflow properties the presenter said there was nothing wrong with that strategy, but he would be extremely confident that his approach would provide far greater returns in the long run.Better tenants, less hassels with maintainence etc.
Anyway thought it might be useful to post for comment and discussion.Geez – I wouldn’t be able to manage that! Some quick n dirty numbers indicate your f/n repayments would be $4,800 per fortnight, rental of say $250 p/w each leaves you $2300 short per f/n without other costs.
So your income would need to be around $420k a year to support this loan (based on 30% of income as max repayment).
Not too many people could carry this sort of debt and eat as well!
Gocats
And what happens if you lose your job or cant meet those HUGE repayments every time? Capital growth is not guaranteed, what happens if there is no growth?
Same sort of calculation is given to me by NII seminar also.
But as every one saying how to buy even 5 IP with low salary?A lot of people discount negitive gearing in this forum because they only look at it in isolation.
Used as part of a balanced portfolio I believe investing in areas of high capital growth, which will more than likely be negitive cashflow, is a key (not essential) ingredient to building substantial wealth.
To put forward another point of view, which is part of my overall investment strategy, why not wrap 4 properties to provide the servicability for each negitively geared, high capital growth property you purchase. Using the strategy outlined at the begining of this thread, this would involve purchasing 1 buy & hold property and completing 4 wraps per year for 5 years. This way the cost of owning the properties bought for capital growth doesn’t eat into your wage, and your wealth is accelerated through increased equity gain.
Cheers, Leigh
“If you can count your money, you don’t have a billion dollars”
J. Paul GettyI am definitely not against negative gearing at all, but if Steve only gets 200k a year from 130 properties how many do you need to support the above scenario?
Negative gearing is good if you are on the highest tax bracket. But Negative gearing more than 1 normally means that your disposable income would be close to $0. Unless you are on a million dollars a year + bonuses (gold collar worker).
My former husband and I were fortunate enough to be around and buying properties 5 years ago before the property boom hit Brisbane. We negative geared our combined incomes of $100,000, sold after five years of huge growth to make a tidy profit. However I should point out that we would no longer consider this an option. The cost of homes now is huge and so therefore must be your wage, as you will operate on a huge weekly loss to benefit from negative gearing. The last home we bought and negative geared cost us $250,000 and that stretched our weekly budget to the limit. Remember you don’t make any money until you sell, and you have to be able to afford the gap between rental and loan repayments. That same $250,000 home we sold for $490,000 and there is no way we would buy it today and be able to afford to wait for it to become a $1,000,000 property. Hope another view helps.
Hi Blackhole
Your assumption that you will have no disposable income left after 1 -ve geared property is wrong. What you dont realise is that you can be -ve geared by only a small amount all of ours are less than $50/week 2 are now +ve geared after 4 years 4 by $10-15/week and 1 @ 50. As we save 30% of our wage this more than covers the repayments we could still buy more. -ve gearing doesnt have to mean $100s/week just like +ve you look for ones that will only cost a small amount but are in good locations to get the capital growth.Hi Erika, No I didn’t say that at all
. I only wanted to state was that negative gearing MORE THAN ONE property is very difficult financially.All I can say Blackhole is that you must be on a very low income!!! I started off with 5 properties all negatively geared and I still had positive cashflow!!!
Actually I’m not Fester. I’ve been in the top marginal tax bracket for a long time. But that’s another story. Its great you can negatively 5 properties. You are a minority thats for sure. Just wondering have you read Steve’s book? Are you from Sydney?
. I only wanted to state was that negative gearing MORE THAN ONE property is very difficult financially.
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