I am about to embark on buying my first investment property, but don’t know wether to buy a negatively geared property in a proven high capital growth area, or buy a positively geared property which may not have much capital growth, but may enable me to hold on to more property in the long run?[hmmm]
Hi petlover,
Firstly, congratulations on your decision to buy your first investment property.
I think the answer to your question depends on what you want to achieve from your property investments. . You may buy some negative cashflow properties to balance your property portfolio but it should not be bought to get some tax benefits. Given you have not bought any IP earlier, you do not have a property portfolio to balance. Remember, assets feed you, liabilities eat you. A negative cash flow property is nothing more than a liability. It will tie you more to your job (assuming you have a job/self employed). I don’t know what your long term goal is but for me, property investment is a vehicle towards financial freedom and (semi) passive income. Those objectives will not be met by investing in negative cash flow properties. You can find positive cashflow with capital growth as well. Typically, you will find these properties in and around regional towns.
Also, when buying propeties, you should be ready to hold them for a period of 7-10 years. Historically, the prices of properties double in that period. Holding a negative cash flow property for that period will be a burden on your personal cash flow and unless you earn six figure income, you will probably stop after buying 1-2 properties.
I hope this helps and good luck with your investments.Regards
SanjivThanks for your reply, that has helped heaps! Robert Kiyosaki would agree that property that is negatively geared would be a liability. I’m looking for financial independance and to not be tied to my job. Will have to do more reading on positive cash flow properties. l am selling my dream acerage to start investing without a big morgage and work smart not hard. it will be tough but worth it.[biggrin]Thanks again.
I totally agree with Sanjiv.
It is especially important to look at what stage the property market is. We just had a big boom, so I believe it will be a while until we get the next upswing. Why carry a draganchor if you could have a spinnacker.
As the market moves closer to another boom, you may consider selling your cf+ properties for something with more capital growth. But I believe that is a very dangerous strategy.
Good Luck
I would really love to hear some real life stories from investors who buy CF+ properties. And some stories from CF- investors and investors who have held a balance of both. It would be interesting to see how these different strategies have panned out. Please include dates, equity, cashflow and which states of Aus and other contributing factors. eg renovation, new infrastructure, zoning changes etc.
Spent the last 9 years acquiring + cash flow properties by the way of wraps in Qld.
Strategy worked well with my capital growth properties.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
What about if the long term plan is to purchase IPs that will eventually fund a PPOR in a very desirable location? Could you take the chance buying -ve geared properties (with good growth potential) and pay down the debt over time until they become +ve (or rent goes up)? The reason I ask is that someone (who is an experienced investor and works in the business) told me that purchasing for +ve cashflow is the quickest way to destroy wealth creation [weird]. My one (and only) property is -vely geared and I thought it only logical that this would need to be offset with cashflow +ve IPs in order to continue growing the portfolio.
I haven’t had a chance to quiz him further on this. Is he talking crap?
Just to reiterate, the long term goal is for IPs to fund beachside PPOR, then retirement. I’m 28.when we started this investment journey we acquired -ve geared properties (it was at the top of the melbourne property cycle). We learned pretty quickly that was not the way to go because our aim was to free us from the jobs but by acquiring -ve geared properties it tied us more to the jobs. Don’t let this b.s. about income producing properties don’t have capital growth. Look at Logan, Croydon, Elizabeth (all ‘undesireable’ areas according to some people) the median price all triple in the past 10 years, the growth match any ‘bluechip’ suburbs !
when we started this investment journey we acquired -ve geared properties (it was at the top of the melbourne property cycle). We learned pretty quickly that was not the way to go because our aim was to free us from the jobs but by acquiring -ve geared properties it tied us more to the jobs. Don’t let this b.s. about income producing properties don’t have capital growth. Look at Logan, Croydon, Elizabeth (all ‘undesireable’ areas according to some people) the median price all triple in the past 10 years, the growth match any ‘bluechip’ suburbs !
when we started this investment journey we acquired -ve geared properties (it was at the top of the melbourne property cycle). We learned pretty quickly that was not the way to go because our aim was to free us from the jobs but by acquiring -ve geared properties it tied us more to the jobs. Don’t let this b.s. about income producing properties don’t have capital growth. Look at Logan, Croydon, Elizabeth (all ‘undesireable’ areas according to some people) the median price all triple in the past 10 years, the growth match any ‘bluechip’ suburbs !
Originally posted by petlover:I am about to embark on buying my first investment property, but don’t know wether to buy a negatively geared property in a proven high capital growth area, or buy a positively geared property which may not have much capital growth, but may enable me to hold on to more property in the long run?[hmmm]
You’re assuming you can just ring up the agent and pluck a pos geared property off the supermarket shelf?
You will be hard pressed to find a pos geared property anywhere in Aus that has a decent rent demand and decent renters at the moment.
You may be able to find one that is pos cashflowed – one that is returning a profit AFTER tax (read Margaret Lomas)
The other options are do a wrap, or subdivide and sell one and keep the other, or renovate and sell /rent out etc. More sophisticated strategies and require more knowledge and experience, but can be done.
Having said that – it you want to be financially free soon, buy investments that pay you, otherwise you will be a slave to your real estate. Unless you are an extremely high income earner, go for cashflow first, growth second – you can’t guarantee growth.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Just to balance out the other side of the argument. We have only ever had one positive cashflow property, which we reluctantly sold to reduce debt and consolidate.
We have always bought negative cashflow because we stick close to Brisbane city in our local area which shows good growth. We are not saying that outer areas are not good, but we know our local area and when a good buy comes up, we buy. We don’t have a large portfolio but it is valuable and will increase.
I think the big difference is that our negative gearing means we get a fat cheque back (our choice to get the cheque, not get it through the year as reduced tax) and also my husband has no desire to give up work.
My parents are self-funded retirees, funded by IPs and shares. Since they bought their first IP 32 years ago, we have (as a family) renovated over 30 houses, including new bathrooms, kitchens, knocking out walls, decks, landscaping, painting, painting, painting.
Whilst it is enjoyable turning a sow’s ear into a silk purse, to do that week in and week out does not really interest my hubby. He likes his office job. It gives him the pips sometimes, but it is easier than punishing his body renovating. Anybody who has renovated themselves knows it is hard work.
So, because he has no desire to ditch his job, the negative gearing has suited us. We have had many lean times in the earlier days, but the rents do catch up, and then we buy another one and start again.
If we hadn’t had three children, we would be far ahead in our assets, but there has to be a balance. I have also chosen not to work, again a life choice. If I worked, we would also be further ahead, but again, life choice must co-exist with wealth creation.
We also have no desire to be mega-rich. There is nothing in our lives that we would change if we won the lottery, except maybe travel overseas, but no great desire or any feeling that we are missing out on anything. We have a good lifestyle.
So for some, negative gearing is not a problem at all.
Wylie
Hi Petlover
Just remember a couple of important things that you must know when getting into an investment property.
It’s a business and the figures must meet your personal cash flow, research all the areas and make sure the investment meets all the criteria’s.
Like potential for capital growth, right rental and depreciations, type of tenant etc.
Sit down and work out your personal cash flow, first making sure you are in a position to invest and then run some figures on different type of investments, you will after a while know what will suit your personal situation and know how much you will want to borrow or commit yourself to.
This is why I always sit with clients to see where they do stand financialy and see if property investment is for them or not. If it is we then discuss different options as far as the properties are concerned. And this is what you will need to do.
Feel free to download my free report “Ultimate Guide to Property Investment” http://www.npis.com.au
Wishing you all the success
Dino Livanidis
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