Hi,
I’m new to the forum and to property investing. I’m already learning lots from browsing these pages and look forward to the opportunity to pick a few brains occasionally.
Having read as much as I can about negative gearing, there seems to be two very different schools of thought about it.
Some of the experts reccomend it as the only way to go, others say to avoid it like the plague in anything other than a rapidly rising market.
The theory that Rent plus tax benefis/depreciation roughly equals repayments sounds good in theory. In reality I can see the possibilty of it becoming a cashflow nightmare.
I would really like to talk to a financial planner who specialises in property investment but most of the advisers I’ve spoken to in my area ony seem to be interested in shares.
I guess what I’m asking is, how well does it work/ not work in practice. I need to hear some real life experience.
Thanks in advance.
Andrew
The aim of Investing is to make money. Obvious statement, but many investors don’t.
Neg gearing means you lose money every week. If the property is going up in value at a greater rate than the neg gearing figure, then this is acceptable to some people. No one can predict cap growth however, so the philosophy of neg gearing is flawed and requires an element of gambling and hope (in my opinion).
Why not buy properties that return a pos cashflow, AND go up in value as well?
In the current market many investors have had to alter their thinking and look for “add value” properties – subdivisions and renos, wraps and lease options etc. to create a pos cashflow.
You can, however, buy properties which are initially neg geared, but after you receive your tax return will tip the cashflow back to the positive, and because it is a tax RETURN, there is no tax to be paid.
This is the only type of property I buy. They all go up in value – some more than others, but my primary goal is to get a pos cashflow first, cap growth second.
Here’s a basic breakdown of how to select them;
1. built after 1987 for maximum depreciation benefits for tax return.
2. land content (preferably for subdivision) for cap growth.
3. proximity to all amenities such as malls, schools, parks, transport, beaches, hospitals etc for cap growth.
4. usually need a minor reno – ability to add value and increase rent return for cap growth and cashflow.
5. good rent return already (above existing finance level).
6. priced below median/average for area as there are more renters/buyers in this price bracket (less vacancy and easier to sell).
6. in good rent demand area. less vacancy.
9. interest only loans for extra cashflow.
10. select an area with good prospects for cap growth – look at local govt plans for development, new infrastructure improvements, population and jobs growth etc.This is my basic criteria and allows me to maximize every aspect of the investment.
With careful selection, you can build a portfolio of properties that cost you nothing, pay you and keep going up in value.
These types of properties exist everywhere, but aren’t as easy to find as they were a few years ago due to the rising property prices and decreasing rent returns. I like this as the harder they are to find, the less people want to work to find them. Less competition.
Read all of Margaret Lomas’ books on this subject. Excellent.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Very good reply Marc
I agree totally with Marc’s explanation.
Negative gearing always increases the risk but not always the return.
Cashflow neutral or postiive, allows you to retain cashflow for quicker accumlation of properties. negative gearing can tie you down.There is a massive amount of information on this subject, just scan some previous posts.
Anyways that is my 2 cents.
Cheers
DaveThanks for the replies
My other thoughts have been to use big deposits to start them off as cashflow neutral but this would slow the process down too much and tie up too much money.
Sounds like careful selection and a bit of elbow grease might be the answer.
Thanks again,
Andrew
Has worked well for me.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi, I agree with Simon, against the advice of my nearest & dearest. Being on 0 gearing as I was, it was really necessary for me to look for -ve gearing.
What makes the venture successful of not depends on the choice of the target property.
I’m working towards 50% LVR and exactly neutral gearing, doing a balancing act between the +ve and -ve cashflow properties. It helps that my properties are significantly below the median. I’ve managed that by sub-division & development.
I don’t wnat to jinx myself by saying that I’ve made profits but -ve gearing has worked and I hope continues to work for me.
Good luck,
Kum Yin
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