I am a newie at property investing.
I have read Steve’s book and buying positive geared properties seems like a good strategy.
However what is wrong with negative gearing? I do understand negative gearing does limit the amount of properties you can purchase. However what is wrong with buying a property for example for $120000, which costs you $50 a week . Over a 30 year term this property of $120000 would only cost you $78000 , 30 YEARS * ( 50 * 52) ) . I would still call that a good investment paying $78000 for $120000 property and that does not include capital gains.
What are other people’s opinions ? Wouldn’t a investment strategy combination of both negative and positive geared properties be a good idea. Buying negatively geared properties in growth areas and positvely geared properties in low growth areas?I think there is a place for both in any strategy.
I think that generally higher yielding properties will provide lower CG which in the long term 4% of a good cg IP is better than a 10% yield of a poor CG IP.
However neg gearing at some stage will be limited to the repayments/salary you make.
Josh
Hi Uncivilized,
My sentiments exactly, in theory.
Neg gearing can work while you are still working. To properly work however, the long term CG must outstrip the shortfall for the term of ownership.
You have already realised the limited serviceability of buying pure neg props. The trap you have fallen into however, is in thinking that you have paid $78,000 for a $120,000 property from your example. Not so. Without CG, this property has cost you about $39,000 after your tax relief on the highest marginal tax rate. Over 30 years, you will have paid out for repairs, rates etc. The bit you have forgotten about is the principal purchase price, plus interest on any borrowings. You still need to get back your principal, be it cash or a loan.
On a better note, your thought of a balanced combination is far better. Having a foot in both camps sounds best to me for two reasons. 1/ Neg props will prove profitable in a rising market, provided that the CG is greater than your nett costs. 2/ Pos props with marginal passive income chance the risk of quickly flipping over to neg with moderate interest rate rises, all other conditions remaining.
Therefore, gain is required to hedge against positives turning to negatives, and positives in place, can fund the negatives. I hope that makes sense. Both are good given certain market conditions, but even better when balanced. At worst, CG props could be sold off, if and unlikely that all pos props flip to the negative.
As Josh points out, you can’t expect high gains and growth on the same property. It’s one or the other, which again you have already come to conclusion. That’s why the pos geared props are found in the boondocks and growth properties are located naturally closer to the CBD’s. I would suggest that the only contradiction to this is units in CBD’s. High rent return, but little growth.
In thought, thanks for yours. Phil
ps You don’t sound too “uncivilized” to me.
Luckyphil
Hopefully I am not to uncivilized. Check out my web site if you want
[www.uncivilized.com.au]no hard sell here, just a hobby of mine.
Hi Uncivilized, (any chance we can refer to you with a more positive handle??)
I clicked on your link from your post:
PAGE CANNOT BE DISPLAYED
Any other suggestion.
Kind regards, Phil
call me matt. Not to sure why the link is not working, however the website is still up and running. You may need to copy and paste
however nice to meet you luckyphil
luckyphil
the link is now working
matt
Hi uncivilized,
Whats your webpage meant to be, i clicked on the link but all i get is a webpage with just a webpage background with some patterns?
Cheers
s.i.sI got the same wallpaper, but I also got a pop-up screen. The pop-up screen talks about a surfing club/competition, I think.
Cheers,
Sue [
]“Be careful not to step on the flowers when you’re reaching for the stars”
Hi Uncivilised,
You asked what is wrong with negative gearing. My thoughts are probably nothing depending on your strategies and your goals and ability to pay.
Just an example though is a townhouse we bought 4 years ago at Coomera, borrowed all and we were putting in over $100 a week to support it. We got caught. Have sold the above, settlement next week. It’s a go ahead area there now and a block of land goes for what we paid for the townhouse. Houses then were around $180,000, and are now twice that. The townhouses were $20,000 less.
We have bought quite a number of houses and some cfp units since, but the -ve gearing and cross collateralisation does have a bearing on borrowing so it was time to sell. Prefer to use a L/C and all properties stand alone.
Anna
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