Hi – well, we bought an “investment” property in Sunshine (Melb) a few months ago – but having read Steve McKnight’s book, wonder whether we did the right thing as it’s negatively geared. We used the equity in our house in Canberra to buy the property.
If we expect the property to get capital appreciation in the medium to longer term (based on close to shops/transport, nice house, 3BR etc, should we try to get more equity so the rent at least pays more then ultimately all of the costs of the remaining loan?
We’re also potentially going to move to Melb next year (job dependent) but are likely to look at living (renting initially) the other side of town because of school/family reasons. We should be able to get a good rent for our property in Canberra and positively gear it such that overall we think we’d about break even in relation to both properties. We might sell but probably only on the basis of ‘an offer too good to refuse’ at least for now.[
]We’re reading books and still have equity we could invest – it’s just a question of getting some mentoring on how to take our current situation and move forward to amass a portfolio of positively geared property.
Suggestions and comments welcome[8D]
Hello Target, and welcome,
I am not an expert, as I am relatively new to investing myself.
What I do know is that Sunshine is one of the suburbs “earmarked” for good capital growth being close to the CBD.
I also know that if you sell your property within twelve months you will pay 50% capital gains tax, (that’s if you have any capital gain).
One point that you make is the posibility of renting out your own place when you move to Melbourne. If you do this and consequently both properties combine to give you a neutral cashflow, this may not be such a bad thing.
I have heard a few investors in this forum use such a strategy with their properties.
I’m sure some actual people who know their “stuff” will jump in after me and give you some decent advice. Good luck,
Sue []“Be careful not to step on the flowers when you’re reaching for the stars”
Thanks Sue – a nice welcome to the forum[
]Hi Target,
I think you might want to consider to not sell it before you celebrate the first birthday of your ownership since a few months have already passed. Even a small capital gain of $10,000 will attract taxes of approx $4,000, which I believe can surely contribute to your wealth creation plan.
As for now, if your Melb property is significantly negatively geared you really should find a way to stop it from eating further into your pockets. I think if both properties will result in a neutral cashflow position it’s really not a bad idea. Afterall, while paying your rent somewhere else you are actually still building up your equity in both properties.
I am not sure if what I suggested is your cup of tea but if you can spend the next few months saving a little for another cashflow positive property, your passive income empire will start to build up its momentum.
All the best and happy hunting!
Jim
Hi Sue,
I like the way you think.
Hi Target, Sue was mentioning the words neutral gearing, ok this is one of my favourite areas on Property Investing. Though i like to call it offset gearing,
In my Opinion that if you are going to move out of you positive geared property, that is providing a positive cashflow, but better yet, passive income on top, if it neutrals out, your negative geared property, and all other expenses of both properties.
Your are then left with all your income earnings at your disposal, secondly, you might have enough equity in the 2 properties to purchase a 3rd property and still be able to cover all expenses, as you are having access to your full income. Cause it no longer pays or goes towards your other 2 properties you own.
Doing this, you have used the effect of Offset gearing.
Beautiful isnt it.
cheers
s.i.sAlso neutral gearing is when the property is negatived geared, but you have to pay out of pocket expenses to cover the loan and other expenses, you can claim depreciation and other small things too. In effect, when you go to lodge your tax return, there are enought claimable expenses, for you to claim, that has put your property into a neutral gearing.
This can also apply if your property is positive geared but makes enough profit to be taxed on that makes that property also neutral geared.
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