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  • Profile photo of DramDram
    Member
    @dram
    Join Date: 2003
    Post Count: 82
    June 13, 2003 - 3:41 am

    Thanks Michael,

    Your reply certainly cleared things up. If I have understood correctly, +ve cash flow is actual cash, +ve gearing is on paper after deductions.

    My example…..

    Rent: $155pw ($8060pa)
    Loan : $536.86 pm ($6442.32pa)
    Body Corp : $1354.80 pa
    Management Fees : $950.40 pa

    Therefore cash flow is negative with a $687.52 pa loss. ie: actual out of pocket expense.

    Now, I am on the top tax bracket and pay approx $20000pa in tax. Allowing for on-paper deductions such as interest (approx $5000pa) and depreciation (approx $1500pa) provides a tax saving of approx $3000. Effectively the property is positively geared.

    Do I have that right?

    Thanks again.

    Profile photo of DramDram
    Member
    @dram
    Join Date: 2003
    Post Count: 82
    June 13, 2003 - 1:34 am

    Hi Patricia,

    I’m in the same boat….just can’t seem to figure out the difference. I’d like to ask a few questions that hopefully someone could explain…

    +ve cashflow

    * Does my cash flow have to be +ve before or after deductions for it to be classed as +ve?

    * I think I read this comment on another post…”Negatively geared property with +ve cash flow”. By using allowable deductions to turn a negatively geared property into +ve cash flow. Is this a truely +ve cash flow IP?

    Depreciation
    I’ve read a few books and a number of articles on this site on depreciation. I thought I understood it but now …..

    I took the following quote from the article ‘Negative Gearing…Friend or Foe’

    “Depreciation is an accounting term used to describe the wear and tear of an asset that occurs over time. In practical terms, depreciation on a property refers to the carpet wearing down, the walls becoming chipped or stained and the furniture dating”

    Surely, wether or not I claim depreciation the property and fittings are going to wear. I realise that through this wear and tear the building will need maintenance and item need replacing. Why then not claim depreciation on the items and building? Or am I missing the point for/against depreciation?

    AD made a point on this post about the building depreciation reducing the “value” of the property and so effectively increasing the net gain from a sale. I never knew this (actually I’m fairly new to property investing, so I don’t know a lot [:I]) Is this the main drawback of building depreciation?

    Wow, I hope that all made sense! I’d appreciate it if anyone could help me sort it all out.

    Cheers,

    Confused

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