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Another advantage of positive geared property is that as you increase rents gradually for each CF+ property per year, your income grows by alot too. It's a great long term strategy, and one that I employ as it fits well with my goals and philosophy.
I would prefer making money through property which is passive income, and building a portfolio of CF+ properties in order to be financially free. The goal for many CF+ investors is to continue to get more cf+ properties so that the profits from it replaces their active working income, thereby relieving them from having to work at all. CApital gains can still be achieved by cashflow+ properties if you are selective.
I take negative gearing to be quite speculative, whereas with positive geared properties you can take more calculated risks as the numbers today will inform you whether or not you are making a worthwhile investment.
opee,
I agree with catalyst that you need to get advice from people who have actually achieved the result you want. (Not from friends or family or others who do not own any IPs or are just giving their 2 cents opinion)
But before you get good advice from good rolemodels, it helps to know what you actually want. What do you want? What goals do you have for investment properties?
If you get clear on that, they you can get clearer on the solution.
Yeah, I reckon it's more negative geared than neutral.
Insurance costs will be around $400 per year or higher or lower depending who you go with – oh and I tihnk it might be different for you since you plan to self-manage the property.
Also consider that even though you will manage the property yourself, there will be costs such as advertising and other related costs in finding new tenants.
There are still houses in Western Sydney that fit your budget of $200k-$300k.
Like some of the others previously, I also advocate the positive cashflow strategy. If you want to be financially free by your 30s, you just need to figure out how much money you need per month to live well without working. Then figure out how many positive cashflow properties you need, churning out a certain amount of cashflow per month.
Gradually, invest in that amount of properties and then you begin replacing your active working income with your passive property income.
I second the Magic of Thking Big!
Oh, and just to help you out with going through all these books, just remember that you don't have to necessarily read them in book format. I've read alot of books, but most of them have actually been in audiobook format. I've learned that I'm an auditory learner, but also you may find that you can read alot more books if you listen to them while you're exercising, commuting, doing random tasks. This is what I do to get through so many books.
Personally I'm on the positive geared camp, like Steve McKnight. I also advocate reading his book. It's a good philosophy.
I don't like losing money and negative geared is more risky in my opinion because you're hoping that appreciation will occur and will make you money some time later down the track. I like the passive income aspects of positive cashflow properties, and the fact that it puts money in your pocket month after month – that's one avenue that you can get serious financial freedom.
But each to their own, I guess. Different people have differing risk profiles and preferences and goals.
I think vendor finance would be a good option to prevent you losing tens of thousands of dollars from just selling your properties in a flat market.
It reminds me of the vendor finance example that Steve Mcknight talks about in his book. That might help you out with figuring out the numbers and working out how to get it back to making you money.
A key part of your vendor finance strategy could be for you to charge a higher interest rate to the buyer, so that the buyer effectively pays for your loan repayments but you also get a nice little profit which you could use to pay off some of the repayments for the 2nd property.
This is my take on your questions:
– How do Positive geared properties make money in the long run? Is the idea to keep them forever or to sell them within the 6 year period to avoid CGT?
They make money for you by replacing your working income. Positive geared properties have a main purpose to help you be financially free. Therefore, you need enough positive cashflow from properties to replace your current income. In that way, you could retire by your 40s-50s to achieve your goal. You could keep them forever, and as you do, you gradually increase rents every year which also helps to increase your cashflow.
– I have read a few books on the topic now and in none of them does it say anything more than to ‘HAVE AN EXIT STRATEGY’. What kind of exit strategy could we have? Hypothetically, if we had 50 Investment houses and the interest rates went through the roof and every one of our houses overnight became ‘Negative geared properties’, what kind of exit strategy is possible, apart from bankruptcy??
That;s why it's important to choose positive geared properties that take into account the event that interest rates do go up. When you do your calculations of expenses, you can either use repayment expenses that use the average interest rate over the past couple of years OR you could figure what's a high interest rate that it could reach, and if the property is still positive cash flow even in that scenario then its worth it.
To reduce your risk,d do the calculations beforehand so that you don't have to stress in the case of interest rate rises. Fixed rate loans can also help to give you more peace of mind.
– Are we better of using cash as deposits on investment properties or just on the first one, and then the equity on that one to fund our next one, and so on and so on..? Or do we use equity from our PPOR?
If you use cash, and have to save up for every property, it may take you a while to amass several properties as you have to ongoingly wait for more deposit money. This is possible if you want to be more conservative.
If you use equity, you can get more properties faster – preferably postiive cashflow ones.
Trusts make much more sense. With trusts you also have the power to distribute income. And the limited liability is very appealing.
If you have a read of Steve McKnight's books, he goes through a comparison of the different kinds of entities, such as sole ownership, partnership, company and trust. This could be very helpful for you to take a look at.
The conclusion from the book, is that trusts are better, and that he even uses it, and many other investors use trusts too – not companies.
Have you checked the outgoings? Such as strata fees, other fees? Maybe they are high too, and eat up all the income.
Also, at $599,000 that's a rather expensive CF+ property. The stamp duty on that would also be huge. There are much more positive cashflow properties that are cheaper at half the price of that or even less.. That's perhaps the reason why. You should also do your due diligence to double check that the property is in good condition though.
If the numbers work, then it is probably a goer.
