Forum Replies Created

Viewing 3 posts - 1 through 3 (of 3 total)
  • Profile photo of BigbellyBigbelly
    Participant
    @bigbelly
    Join Date: 2006
    Post Count: 4
    February 2, 2006 - 2:45 pm

    Hi Derek,

    My example refer’s to every dollar after the 100K mark. Ie John makes 200K. 100K is for normal expenses and the other 100K for investment.

    I am trying to keep the case simple. Thankyou Derek. I can see the fruits of negative gear investment and the pitfalls. However I believe a well planned structure will in many case lead to a fruitful investment.

    With my original understanding confirm, this has given me more courage to go beyond 2 IP. I love the idea of Positive as well but finding it needs alot of time and patience.

    Thanks
    Bigbelly

    Profile photo of BigbellyBigbelly
    Participant
    @bigbelly
    Join Date: 2006
    Post Count: 4
    February 2, 2006 - 3:10 am

    Hi,

    Thank you for your response. I just trying to understand the possible gains of negative gearing, when income reaches the 48.5% tax bracket.

    What to do with 100K at 48.5%.
    Say over a 5 year period

    Scenario 1.
    Interest Only Account:
    * 51500×0.054 = 2781pa. Give government another 1400 tax! (No Compounding)
    * $257500+1400+2800+4200+6600+7000=$279500.
    * Gain 22000 after tax.

    Scenario 2.
    Invest Negative geared.
    * 5 properties bought at 300K each with 80% leverage.
    * 1200000x.003x5years=180000
    * Lose 500,000 for the 5 year period. But get 242500 from tax man.
    * $242500 Cash and 180000 unrealise equity value?
    * Gain approx 150K in 5 year in unrealise value but if you do CGT … then it will about 110K gain?

    Am I missing something here? It appears that John really invest 15K and makes 110K. Now this to me is not right, did I miss a calculation somewhere?

    Thanks
    Bigbelly

    Profile photo of BigbellyBigbelly
    Participant
    @bigbelly
    Join Date: 2006
    Post Count: 4
    February 1, 2006 - 4:10 am

    Hi,

    Thanks for your reply. Sorry the example was not the best but it got the picture =)

    So he would get 32500$ in tax back. So in reality he loses only 67500.

    Thanks alot. The reason was asked was to understand when income start going over the 125K mark. And how Negative gearing will make investment a bit more efficient.

    For example:

    John makes 200K a year…for example sake, he want to negative gear 90K. So he needs to have enough investment to lose 75K a year. Say he then have 5 properties each costing 400K and getting rent about $350 a week.

    Borrowing: 2000K Income: 91000
    Interest : 160K
    Misc : 20K

    So John loses 89K that year but gets back approx 40K from the tax man. But he will have the unrealise capital gains.

    So 2000K grows at a low rate of 3% p.a. he will make 60K a year.

    By investing 89K a year he will make 100K (inc 40K for Tax) a year!

    This is what my interpretation. is..if this is incorrect please correct me, cause it would start making sense to negative gera for high earners.

    Bigbelly

    this is not advise, please investigate and readup yourself.

Viewing 3 posts - 1 through 3 (of 3 total)