G’day
I was wondering what the forum members thought of positive cashflow as opposed to positively geared, ie. Making a loss on paper like negative gearing but having enough in on paper deductions to make a profit at the end of the year. Im pretty sure steve does not recommend this but I read another book from someone who is an advocate of it, keeping in mind if you have quite a number of these aforementioned properties then you do have to purchase a few more positively geared properties because eventually you will run out of taxable income to claim, once again similar to negative gearing.
Does it mean that if at the end of the year you make a $100 cashflow loss on a property and had $3100 in on paper deductions then you would make $3000?, or am I interpreting it incorrectly?
Any advice and thoughts appreciated.
Thanks in advance,
Krusty.
Ps. Explain it to me AS IF I was a numptee. taPositive cashflow and positively geared are the same thing in my opinion. I think you are describing a negative cashflow property (because it costs you money to hold) which becomes positive cashflow when you get your tax return. I would probably call this neutrally geared as it is borderline until after tax.
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The poster formally known as The Mortgage Adviser
When I grow up, I want to be a Storm Trooper!
Krusty,
My understanding is that you can get positive cash flow out of a negatively geared property, but obviously not the other way around.
ie. If you claim deductions based on a before tax loss then it is negative geared and you get tax $$ back from the government. If these tax $$ turn the cash flow positive, then you’re +ve CF from -ve gearing.
However, if you’re +ve geared then you’re making a profit before tax. You pay tax on this, but never enough to take the CF -ve. It just reduces your after tax profit.
In most instances people tend to use cash flow and gearing interchangeably, but there is a slight difference. I’d consider CF as the more critical component as it determines servicability and therefore your borrowing power and potential leverage. Gearing just helps with CF when you’re -ve geared.
My 2c,
Michael.Krusty
The situation you refer to can occur when you have a negatively geared property before taking into account the non – cash deductions (ie depreciation) which in new shiny apartments with all the trimmings can be quite substantial in the early years. This is how some marketing groups sell apartments as “cashflow positive”.
It is important to bear in mind that the amount of depreciation deductions will decrease in subsequent years.Regards
Clive[biggrin]
Gday
Try and recognise a marketing sales pitch from a true +ve cash flow IP. Choose deals that make you money from the word go.
Cheers
I feel special!
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[withstupid]
The forumite formally known as Big RobHenry,
You’re on another planet. Read the explanations again, they’re pretty simple.
Basically, you can get positive cash flow from a negatively geared property due to the deductibility of non-cash flow items such as depreciation. Its not mensa…
Whatever,
Michael.
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