Hi,
thought I would throw this open to the forum.[winking]Twelve months ago a friend of mine purchased a two bedroom unit on Hamilton Island (in the Whitsundays) for $425,000. Yes folks — it was negatively geared. [baaa] Recently he was offered $755,000 to sell — making in one year over $300K. [biggrin] He has decided not to sell because he believe there is still more growth. And that’s not all. During the summer season he made $6,000 a month in rental. Rental in the winter months varies between $4-7K per month.
He borrowed 90% of the cost of the unit and so is negatively geared to the hilt.
But the question is this. Is it worthwhile to keep struggling to find that elusive cash flow positive property — one that probably won’t yield substantial capital gain — and one that certainly won’t provide much in the way of depreciation allowances. Yes, it might put a few dollars in your pocket per week, but in terms of the big picture is there a significant gain? [blink]
It seems to be that if you want to make a series of big hits[thumbsup2], then possibly searching out unique, upmarket property might not be such a bad thing (negatively geared). Gasp!!! did I really say that.[eh].
I can hear you say — “the financial institutions will be the winners”. But, if I could buy and sell just two properties in the one year — and make say $100,000 to $150,000 on each deal [rolleyesanim]– that certainly seems to be an easier way to make a living rather than focusing full time on locating property in a regional or rural centre, hoping to put into my pocket maybe $150 per week per property. That’s if I get it right[8]. And that’s a whole new topic.
Yes, I will have to pay CGT. But hey, I can handle that if I’m making that sort of money. Also my tax position will get a boost in terms of a tax deduction against interest paid.
And if you think those type of gains over one year are unrealistic, have a look at coastal property in Queensland (on water or with water view). I have been tracking this market for the last two years and large gains are definitely possible.
[Let the debate begin.[argue]
Regards,
HelenI was wondering when people on this forum would start to question the positive gearing/positive cashflow model
There are other approaches such as the one illustrated by Helen.
And they can deliver great results.
Personally I’ve been a fan of positive gearing long before Steve McK made his first buying trip.
However I also have a number of negatively geared properties.
Why? – because I make much more in CG than it costs me in monthly payments.
This can be transformed into cashflow in a variety of ways.
Investing is personal. Use the approaches that work for you. Not just the ones that have in the past worked for other people with different financial situations & goals, or are the current fad.
Cheers,
Aceyducey
Helen, if the rental is 5K a month, 60K a year, why would the property neg geared ?
Helen, the argument of -CF bad, +CF good, is not that simple.
I “discovered” +cf investment in 1998 in Goulburn when my daughter married and moved to Bega. I was heavy into negative gearing and couldn’t believe that I could buy properties for $80 and rent them for $170.
At the time I timidly asked the expert investors in the market about this bonanza only to be received with a barrage of ridicule. The only winners are the financial institutions! I was told matter of fact, you must chase the CG.CG was king then and every man and his dog were chasing it in mayor cities. I was going against the trend, so I made +cf AND CG.
Negative gearing for CG is limited to how much you can repay, flipping properties is OK in a growing market, +CF was fantastic for years if you had the guts to go into debt for a few millions.
What will work now that the whole of the country is after +cf?
I suppose that is the question on everyone’s mind. If you know of an area with strong growth, obviously buy for CG, if you know of an area with +CF and with a decent size population go for it whilst you can (and don’t tell anyone please).
There are no good or bad strategies, only strategies that work for you and others that do not. Investment strategies are not a religion. It is when they are turned into one that they go belly up because too many follow a standardised approach and in a finite market we start competing with each other.
At risk of upsetting some people here, I wish Steve had never written his book, but of course that is nonsense since someone else would have, that is the nature of things.Do what works for you, that is what makes you money and makes you happy, don’t try to swing others into doing what you do, you are only shooting yourself in the foot.
May God prosper you always.[biggrin]
MarcHi Elika7264,
personally, im after the capital gain, nothing too wrong for +ve cashflow, but for me personally, i find it too slow of a game…
… as an investor, and when ever presented with deals, my first question is,
1st Question is… how much money can i make, (thats either for cashflow or capital gain)
and
2nd Question is… how long till i can get my money back out of the deal
for each and every type of investor, you will find, they have a different approach and strategy for every market…
first question you should ask yourself is… what type of investor do you want to be…
big quick returns or slow compounding returns…?
Cheers,
sisOriginally posted by Still in School:
big quick returns or slow compounding returns…?SIS,
This reeks a little of ‘get rich quick!!!’ or ‘get rich slow’.
I prefer to look at the risk factors instead…..
What level of risk does the strategy ebtail – are you willing to take that level of risk?
Personally the more I invest the more I find that the old adage ‘higher risk, higher returns’ really only applies as a mantra for inexperienced people.
I prefer ‘greater knowledge, greater returns’ myself
Cheers,
Aceyducey
Appreciate your thoughts Marc.
We are only very new to investing in property and have tried to follow closely to Steve’s pattern.
What is working for us is buying in towns just outside “boom areas”. We have bought places that have been rented for years and had little/no maintenance in that time – hence we have been able to negotiate good prices, paint and fix them and rent them out +CF. We are not making much money on a weekly basis, but in just a few months we have good increased valuations on them both as well.
We are going slow and steady as we have been bitten by other thngs we tried in the past. And we are growing more confident that this will work for us as a long term investment.
It’s really great to have this forum as well where we can learn so much from each other.Cheers, Diane
I prefer capital gains to ve+ cash flow rural/regional town properties.
Is the effort (finding tenants, attending to repairs, paying bills, liasing with repairmen, property managers, driving to place) really worth an extra $200 a month.
I purchased my last property two years ago and it was ve-. I decided to sell it and cash in the profit and and put the proceeds against the PPOR. Now my portfolio is neutrel (spelling???).
Why did I sell. I sold because I decided the market has peaked and I could not justify to myself all the extra interest payments I was making.
I am happy with ve- properties in surburban areas. However now I reckon the property cycle is on the way down a little and am consolidating. I am hoping as interest rates rise yields too will get better.
I prefer capital gains and invest in quality surburban properties near the station and beach in middle ring Melbourne surburbs.
All else is too hard for me. Now with a young family that needs to be educated, I cannot go as Gung Ho as I could have 5 years ago.
Maybe when I am near giving up my curent job I will look at ve+ properties in regionla areas. But not now.
Marc, thanks for comments and agree.
Funny about this great debate, I would take a guess that most people/investors on this forum actually buy negatively geared property.
Possibily because it is very difficult to locate good quality postiive props.
I have just purchased my first positive property and have doubled my money, regional area. This was luck and timing and some help from a local.
It seems that people feel if you purchase negative props you have instantly got yourself a property with great CG. There are many people who get burnt either way. As AC says “greater knowledge, greater returns”.
[biggrin]
CG/+CF all have their places.
One needs to think of whether they want security or freedom and whether they are investing based on opinion or fact.
Myself, I want to have the freedom to do what I want to do and base my investments on fact. I will know how much I will get per month from +CF (fact) and have the freedom to do what I want when I want.
In my mind to try for CG based on -CF you need to have security (a job to pay for the -CF) and your future earnings are based on an opinion (that’s my opinion any way [biggrin]) that the property will increase by x%. Lose your job (very real these days) or you opinion is wrong (seen this before including myself) then you are in deep trouble.
Later………
My wife and I bought a unit in Cremorne, Sydney two years ago. Small block, near new, good street etc. It cost us $535K and is negatively geared to the tune of $140 a week. Well in two years it has cost us around $15,000 to keep. It has gained approximately $200,000 in value though.
Pretty easy maths really!
I have noting against +ve CF properties ( I have two in my portfolio). But the CG from our one -ve CF property would be the equivalent though of two years of returns of perhaps 70 or 80 +ve CF properties. The questions you have to ask yourself is is purchasing 70 or 80 +ve CF properties realistic in 12 – 24 months.
(Note: I have not taken tax considerations into this example – start doing that and it looks even better for this -ve geared property)
“Life is not a journey to the grave with the intention of arriving safely in a handsome and well preserved body, but better to skid in sideways, thoroughly used, totally worn out and loudly proclaiming . …… Hell, what a trip !!”
The assumption is that property will continue to make such capital gains. As the economists are saying property is now at a historically high level i.e. around 9 times earnings and we know that this is not sustainable. Either one of two things are going to happen (or maybe a combination of both). Prices will decrease so that affordability is increased or prices will remain stable until wages increase and again affordability increases. So if you have a negatively geared property purchased now and it makes no gains for 5 years then it would have been better if the funds stayed in a debenture at a rate of around 8%.
I have been an advocate for some time of realising your gains while the market is high. That time is now. Obviously you need to determine the cost of holding the investment and ensure that you make a reasonable return on your investment after outgoings and including the tax effect.
I think now is the best time to sit back and wait. I cant believe how many people are still investing in the market. But then again I said the same thing during the tech boom. Well I guess that is why I am in the 2% they keep talking about.
The real question is what is the right investment strategy for today and tommorrow. We all know what we could have done 12 months ago. Holding on the property for other reasons may be fine, but trying to acheive a greater capital growth than 300K in one year smacks of greed to me and what would the effect be on rental returns and capital growth, if for instance there was a major terrorist attack in Australia that crippled the tourist industry.
Obviously it comes back to what you need or want to acheive from your property investments and if it is permanent yearly income to acheive financial independance then cashflow positive seems to be the way to go. Depreciation allowances are all fine and dandy, but remember if you depreciate something it is because it will actually need to be replaced someday and that is what a depreciation allowance is for.
On top of all that, you have to be pretty well of to cope with a $380K interest only loan on a negatively geared property. If you can do this then all the best too you but it is out of reach for most investors, especially those just starting out. That being said, no-one ever said that you can’t have a portfolio with both negatively geared property and positive cashflow property.
Good Luck
Gerard.Well everyone here seems to know what the future holds. I remember when buying my first property for $65,000 in Oct2001 how everyone 6 months later was saying the market would crash. I asked everyone, every age group from different business environments. Most of the older (50-60 year old working people) advised to sell out for around $80,000K and get the small profit. I held on feeling quite pressured and stressed and considered selling. Now properties in the same block sell for $150,000K.
If you sell out, you lose not only in CGs but also you have to pay the agent commission, then whenyou buy another property with your profit, you pay approx 10% of the purchase price in fees, stamp duty, tax, most of which is tax deducitble but you end up paying for it anyhow….
My plan is to buy and hold and rent. others buy and sell.
Whichever way you go, good luck with it –
Sensible outlook daaussie
When we bought our unit, we were told by many that the market was already at its peak. Who really knows the market and what it is going to do in the future.
I don’t really know what is greedy about trying to get a good CG though. To me that is good investment.
To echo you again daaussie, we have no desire to sell it at the present, maybe in 3 – 4 years time when we need the money for an extension on our PPoR, but that will again depend on how it id doing.
“Life is not a journey to the grave with the intention of arriving safely in a handsome and well preserved body, but better to skid in sideways, thoroughly used, totally worn out and loudly proclaiming . …… Hell, what a trip !!”
Many of us mention how much money (CG) we have made with a particular property.
I dont recall members disclosing the amount of income made from their positive props.
It would be interesting if anyone out there has actually managed to establish a healthy income from +ve scenario.[biggrin]
Hi Marisa
Happy to……..
Make ~$25K from 5 +CF B&H’s and lose ~$5K from a -CF
Later………
Great topic to raise Helen,
Reminds me of something a gentleman fro Singapore told me years ago with regard to investing in property which basically mirrors your Hamilton Island example.
ie.. when you have finite land (an island for example) and demand, or excessive demand, then the only way you can build is up (multi storey) and hence prices go up accordingly.Until of course, the price exceeds the demand or economic factors change then you’re into the bubble phase, after which a correction is due and some or many will get burnt.All part of the cycle.
But an interesting concept about land locked (with natural barrirs in place for eg.. mountan range and ocean ) places being good to invest in, if you can afford to do so, as your capital growth is more assured.
KP
As someone once said, I’m not educated, but a positive is always better than a negative !!!!
Ok – now for the serious comment…
I’d say it depends on what your goal is…..
Making a 300k profit is nice, but that isn’t going to happen everytime….
Some people buy properties for the CASHFLOW… and that is something that lasts as long as the property is kept…. and there may also be CG as well if the place has been held for some time…..
Before I get shot, I do hold Both -ve & +ve geared properties.. but, the majority we have are +ve….. why ? because it provides us with a stable monthly income….. CG is nice and all, and I do get that from some of our properties, but it isn’t a constant……
I’m amazed that people are trying to defend or promote either way of investing, they are BOTH correct….. the MORE IMPORTANT ISSUE is, WHAT IS YOUR GOAL ????
Cheers
Scott
Thanks Hotrod, congratulations, I’m impressed considering only 5 positive properties – that aint bad.[exhappy]
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