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The problem with most cash flow positive properties is two fold. First in order to purchase a cash flow property where the rents exceed the outgoings the amount of Capital growth is often limited because of the location. The second issue if it is cash flow positive is that your invested funds have to work harder because you pay more tax when compared with a city property that is negatively geared and you often have better non cash depreciation benefits in the higher valued negatively geared appreciating assets.
Accessing your equity in a cash flow positive property often means it is no loger cash flow positive unless the next asset your purchasing is also cash flow positive as well and so again your sacrifice growth in your portfolio because you pay more tax as well as not having as much capital growth.
The other option is if you build up 7 negatively geared properties and hold them over two property cycles (a cycle being 7-10 years) your capital growth and your rental incomes should allow you to live off your equity comfortably without selling anything. The key to this strategy rather than selling you take a non deductable L.O.C. of say $50,000 for property 1 in the first year, $52,000 from property 2 in the second year and so on. At the end of 7 years you go back to property 1 and start again another 7 years of capital growth has occurred.
The interest you will pay currently around 7.5% per annum on the nondeductable debt is much lower than the individual tax rate of around 30%
When you die and leave your children your properties and non deductable debt it will still only be half geared. They then have the choice of selling 1 or 2, pay some capital gain and the rest pay off the non deductable debt or if they have a comfortable income use the rents to pay off the non deductable debt if they so desire or… continue what you startedRegards NR
Hi DWOLF;
I'm not a blue sky property investor. Times are tough. The last 20 years has been easy to make money in the property market. The next 10 years will sort out the wannabees from the real investors. The reason why I buy pencils with erasors on the end is it helps when I make a boo boo I call it my investment education fund. I've tipped at least $300,000 into that fund over the years. The key is not to make the same mistake again but to learn from it.Regards NR
Hello Winston nonrecourse on the Somersoft site before they kicked me off
Much nicer group of people here. With all the quality people that Keith the moderator at SS have pushed out its populated by mostly light weight wannabees like our friend Keith.This site will enjoy your insight. I have found people a little more respectful of the message that yes property is a great investment but beware of the times we are living in. The only sure thing is death and taxes
So investing in real estate is terrible for the economy eh?…. We should all go out and buy shares so that Goldman Sachs and the rest of the shake down merchants can help the economy grow
My properties provide the state government with a river of gold in good and bad times called land tax and stamp duty. The councils get money from my rates to provide for many of the services I don't use My newer properties have provided employment to all the trades people and GST to the states yet again. My older properties need maintenance so more jobs and GST.
When I sell a property I pay capital gains tax so the Federal government can employ people like the economist Ken Henry who has a great idea to tax & destroy one of the few things we still export…minerals My properties provide me with cash flow that is then used to acquire more business assets that then go to employ more tax payers
We should listen to the OECD so that our economy is as rooted as the Europeans and the septic tanks (yanks) who by the way are doing a marvelous job through the Federal reserve printing dollars and exporting inflation to the rest of the world. Us greedy landlords have a lot to answer for. If comrade Henry has his way all the mum and dad investors will be squeezed out of the property market so its fairer
[That's bad advice. You shouldn't invest in property for tax concessions.
The choice you make comes down to many factors, one of which is your individual risk profile. What do you feel comfortable with?There's no real right or wrong answer – it comes down to what you feel comfortable with. All three options above, in my book, are better than doing nothing….the one you choose is utlimately your decision.
Jamie[/quote]
Really? I beg to differ. The tax concessions by investing in property are the icing on the cake. You make your profit when you buy well, ….manage the tax deductions properly…. expense the depreciation in the accounts….. reduce your overheads by managing the property so your outgoings are minimal and……if some idiot wants to pay you well above what its worth because of the attractive yield you take your profit……
Instead of paying capital gains you purchase an even better property, prepay the interest in advance to offset your capital gain in the same financial year and start the process all over again.
Hello Intrigue;
I have purchased gold bullion through my super fund from ainslie they are a reputable firm. You can also purchase gold/silver through the Perth mint.Back in 1978 I had a student loan of $600 that I was going to use to purchase silver futures until my father got wind of my scheme and put a stop to it. I watched in frustration as silver went from $5 an ounce to $50 when the Hunt family texas billionaires almost cornered the market. In defiance of my father I blew the entire $600 on a you beaut SLR camera and telephoto lens which I still own
Looking back my father was right and it was fortunate I didn't profit from my speculative punt as I was gambling with money I couldn't afford to lose.
A few years later 1982 I purchased some gold bullion and did well out of it because when Keating devalued the Austrlian dollar my gold which I had purchased with U.S. $ bought 20% more asussie $. We used that windfall as part of our deposit on the first
home.My advice is don't look at gold/silver as an investment but rather as a hedge to combine with your property investments. In our super fund our goal is to have 5% in gold bullion. It's an insurance policy if the fiat currencies collapse.
The head of the world bank yesterday let slip that he felt the world should move back to some form of gold backing. I prefer gold but you probably will see silver multiply more than gold,
Regards LR
If you invest in new property and obtain a depreciation schedule you will get an immediate non cash deduction of 2.5% of the total value of the building each year for 40 years. Please note that is the building component that depreciates not the land. So say you purchase a $400,000 investment property and the building is worth $200,000, voila thats $5,000 a year. Then you have your interest holding costs that are deductable. In this climate its wise that your gearing is conservative so that your rental income less the depreciation claimed and the interest gives you at worst a small amount of negative gearing.
Be also aware that by claiming depreciation you are reducing your cost base unless you have a very sharp accountant who …..
Excellent response Mr501
Everyone has an opinion but in a court of law its called heresay.The safest course if your not sure is to obtain a written legal opinion as each case has its variations.Regards NR
Was googling investing in gold bullion in SMSF's and came across this post I had forgotten about. As part of our seperate reserve investment plan in our SMSF since June 2009 when we paid out the loans on our properties in the SMSF we have been purchasing gold bullion using the rental incomes as we have no time for the share market. We eventually plan to have 5% of our SMSF in gold bullion and 5% in cash.
I have a bit of a giggle when I see the comment about direct property in an SMSF being clunky. When you look at all the frozen funds in REIT's and the sea of red ink in a diversified share portfolio's thank goodness for clunky investments like direct property and our purchase of direct gold bullion (it sorta clunks when you knock it
together.The real point of this post is to remind investors that the US Federal reserve is printing fiat currency like there is no tomorrow. Our gold purchases are not an investment but rather a form of hedging to use to protect our property investments if our fiat currencies go pear shaped.
Just a word of caution with regards to any government scheme such as NRAS. My take is stay away from anything to do where you are reliant on the government doing the right thing. With this scheme you charge a rent that is below market rates and get some government tax incentive.
Cast your mind back to 1. the Telstra share float, 2. the Victorian assistance program to help low income individuals purchase their first home, 3. The solar energy rebates, 4. The insulation debacle
.Well meaning but absolute fiscal pygmies !!!
[Sounds like you've done well.
One question is- do you think that paying off as much of the priciple early on (or any time) cost you money in the big picture?.
I say this because this money can be used as a deposit for an additional property.30% LVR's seems very consevative and a very low risk tolerance.I was told that a 60% LVR is a point that banks are very willing to provide Line of credits against properties even when debt to income is lowish.[/quote]
Yes 30% is very conservative. In the good times 1996 -2000 and 2003 to 2005 we use to gear up to 120% for a new property using our collateral from our existing investment properties.
In every property cycle there are times when banks will refuse you further finance. The old saying from Alan Bonds heyday you have a problem if you owe the bank 2 million dollars. The bank has a problem if it has loaned you $250 million dollars
At this stage of the property cycle we feel its prudent to sit back and be conservative. Our number one priority is to remain solvent
When you die and leave your children your properties and non deductable debt it will still only be half geared. They then have the choice of selling 1 or 2, pay some capital gain and the rest pay off the non deductable debt or if they have a comfortable income use the rents to pay off the non deductable debt if they so desire or… continue what you started
I call it my investment education fund. I've tipped at least $300,000 into that fund over the years. The key is not to make the same mistake again but to learn from it.
Looking back my father was right and it was fortunate I didn't profit from my speculative punt as I was gambling with money I couldn't afford to lose.
together.
