Guys,

I posted an answer to this in another similar thread, but will do so briefly again here. My understanding is that they are fundamentally different and it isn’t just a question of semantics.

Once you realise that negative gearing (NG) can give you positive cash flow (PCF) then it all becomes clear…

Basically, negative gearing means that your on paper profit is negative because you’ve allowed for non-cash deductions such as depreciation. For this reason you can claim this “loss” with the government for tax relief. This is negative gearing.

Now, if that tax relief is sufficient then you can turn your on paper loss in to a positive cash flow outcome. Depreciation has no cash flow impact so once you get that nice tax cheque you might well be comfortably CFP from your NG property.

I’m a big advocate of negative gearing so that i can get some tax relief, but I like my properties to be neutral or cash flow positive. (Also, the sort of properties I like are more geared to capital gain as my primary IRR earner over CF so tend to be neutral on cash flow and often NG).

Hope that helps clear up the difference.

Cheers,
Michael.

Scott,

I agree that there should be very little risk of a wrap company going belly up. As you know well, they make their profit on spread as well as any potential CG if the wrappee defaults.

If their making a positive spread then how can they fold? Unless they are spending it elsewhere on riskier ventures and thereby come undone. Once a wrap is established then the risk is negligible. And the risk up front can be mitigated with “subject to’s” on the contract such as “subject to finding a suitable tennant buyer”.

I know I’m preaching to the choir, but I fully agree with you and Karl’s posts on this matter. Its not my kettle of fish as it seems like hard work and very legally complicated. But I believe that ethical wrappers provide an excellent service to a certain subset of the market that doesn’t initially qualify for conventional loans.

I spent a lot of time conversing on the John Burley forum and learning as much about wraps as I could. Ethics did occassionally pop up as a discussion topic and was well dealt with by posts such as Karl’s above.

Cheers,
Michael.

Jaffasoft,

Sounds interesting! I own 40 acres of Rural Residential land just out of Bundaberg and would be very interested in chewing the fat over what options I have to develop it.

Unfortunately, I’m based in Sydney so won’t be able to come along. But maybe we can exchange PMs or start a thread on all things Bundaberg.

I’m off for 5 weeks holidays to Africa so apologies in advance if I don’t reply to a PM or an email for a while. I’ll check in again when I get back towards the end of March.

Have a great meeting!
Michael.

Ah, the tyranny of distance! Sydney is just a tad too far to drive for an afternoon’s cash flow. Never played it myself but hear good things.

Enjoy!
Michael.

Willem,

They’re included! [biggrin]

We lefties don’t necessarily appreciate the divisive and destructive activities of the right, but as we’re all-inclusive we believe they too should be protected from themselves.

As a leftie, I am concerned with the wellbeing of all humanity. This seems to be in complete contrast with the views of the far right neo-conservative hawks in the US who think that the only human lives worth protecting are their own. George Dubya even stated that “this is a fight to the end”, and something to the effect of “if we don’t win then we’re going to take the rest of you down with us”. They can’t accept that other doctrines or ideologies might be equal to their own, and believe this is a Christian “Jihad” to the end. Dubya’s a born again Christian who believes God is on his side.

I prefer Sting’s outlook illustrated by his lyrics “We share the same biology, regardless of ideology”. Somewhere along the line the US seem to have forgotten this. In their opinion, there is only ONE ideology and that’s the US one.

Dubya’s a scary dood…

Michael.

Destined,

Good for you! You’re already in the 20% of the population that are financially literate and understand that they should do something to become financially independent. The trick is to become part of the 20% of that 20% who actually do something about it and get on and start building some investments.

The real trick then is to become part of the 20% of that 20% that do so successfully and become truly financially independent at retirement.

What’s 20% of 20% of 20%, I think that’s 0.8% of the population that ends up truly financially independent. Not good odds, but we’re already part of the minority who understand that its something we want to achieve, so that’s a start.

Cheers,
Michael.

vtxdevo,

Its not mensa. Basically, live within your means and invest the rest. If living within your means results in you not having a $20,000 car then so be it. If it also means renting instead of buying a house then so be it. Once you’ve saved/invested enough to buy the house, then do so. Only when you own the house and have some other IPs might you consider buying a flash car.

I think Steve describes it as delayed gratification. If you’re a young person with a $200,000 mortgage and a $20,000 car loan then you’re likely to be living well beyond your means and you won’t be able to save a penny.

Why don’t young people have any idea of even the most basic of financial fundamentals of budgeting and living within your means…

I’m dumbfounded,
Michael.

Steph and others,

I spotted this post by another forumite on “the other” REI forum today and thought you nice folk here might be interested as it related to this thread we had going some time back about the different generations. Its interesting in its implications for us as REI landlords.

BTW, what’s the netiquette when posting someone else’s post? Should I reference the poster or hide their name as they didn’t post it here??? I’ll go with the latter for lack of better knowledge…

Cheers,
Michael.

I came across this interesting article today about the “Me” generation (18’s to 30’s) about their various trends and social values.

The key photos displayed two girls shopping in Rundle Mall yesterday “Clothes are our major expense. I’m not looking to buy a house right now – paying off my credit card is on the agenda first”….”I spend a lot of money on clothes, shoes, going out and dinner….I plan to wait until marriage to buy a house”

I have found in my own investing that my tenants fall into two distinct categories. Single men from broken marriages or DINKS/SINKS with money to burn.

For the “Me” generation that dont live at home, I think for a long time to come there will be a demand for rental accommodation for this finicky group having the effect of driving up rentals and ensuring limited vacancies.

What do others think?

Cheers,

Forumite name ommitted

Summary of article

No mortgage, no partner, no children
Living with parents
Fashion conscious, assertive, educated, interested in the world and ambititious
Materialisim – mobile phones, Ipods, Internet
Aspire to have designer clothes, be famous, shop at prestige stores, have a university degree
For leisure, they go to concernts, pubs and clubs, go for a drive, listen to music or go on the internet
Deferred committments
Source – AustraliaScan, Quantum Market Research

Full Article: The Advertise, February 3, 2005

People aged under 30 who live with parents are well-educated and spend most of their income on themselves and are emerging as the dominant generation, a leading social researcher says.

Reveealing the recent trends in social values yesterday, AustraliaSCAN director David Chalke said the nation was undegoing a significant generational change that had created a period of “adultescence”

Defined as 18-30’s, Mr Chalke said the adultescent generation was “uncommitted”, with many yet to reach the milestones of a mortage, a partner or a child.

They will be a huge force in the future but we are already starting to feel it now” Mr Chalke said in Adelaide.

You only have to speak to HR managers about the problems with retaining bright young graduates these days. They are very focused on money and no particularly intererest in career paths and development. They are likely to up sticks and run if you dont meet there needs.

He said the new generation was quite likely (61%) to be living with ther parents and did not aspire to marriage. “They are self absorbed and they do put self above others” he said. They dont want a mortgage, marriage or children straight up – or they dont want them at all.

“They dont want to stick in a job they dont like just so they can pay the mortgage.

And there is a lack of desirability for marriage. They can get companionship wtihout marriage and think it is only going to fall apart anyway, as it did with their parents”.

He said they described themselves as fasion-conscious, educated and ambitious – but the steriotype of the hard-working Aussie battle did not apply to this generation.

He said their aspirations were more materialistic, such as wearing designer clothes, being famour or having a university degree or being recognised as experts in their field.

Mr Chalke said the adultescent generation was more mobile and more likely to travel, raising the risk of a “brain drain” from smaller states such as South Australia.

Guys,

I used to do a paper run that took me 4 hours and paid $3.50. That was my whole day’s work as a kid and I did it for about 6 months to try and earn some money.

I then moved up to the lofty heights of McDonalds on about $2 an hour. This was a big deal to me! And before you all say you think I’m old, I’m only 34 and this was maybe 20 years ago or so (gee, that is longer than I thought when I write it down though).

Anyway, I agree with abbee that I’d take $5 a day and some eduction to pay off a debt if that was the best way to achieve it.

Cheers,
Michael.

Samual,

OK, a lot of questions so here goes:

1. Earning less income to try and save on your tax bracket is a no brainer. Earn as much as you can, period. The numbers on this one are simple, there is no net benefit from being in the lower bracket as its a sliding scale.

2. There’s a lot of posts on “which book”. I agree with Shaz that Peter Spann’s book is a must read too. Maybe add John Burley’s “Money Secrets of the Rich” to your list and get the Australian version.

3. I don’t necessarily agree that +ve CF is the way to go. You need to look at your net internal rate of return (IRR). Sometimes +ve CF return less than -ve CF due to their underperformance in capital gain. Just buying for cash flow is a mugs game. Cash flow just determines servicability, you need to consider CG if you want to understand the impact an IP will have on your net equity. Your net equity is basically how much you’re worth and is the money you retire early on by buying an annuity or other such.

Do some more reading, and well done on getting into it up front.

Cheers,
Michael.