Krusty,

My understanding is that you can get positive cash flow out of a negatively geared property, but obviously not the other way around.

ie. If you claim deductions based on a before tax loss then it is negative geared and you get tax $$ back from the government. If these tax $$ turn the cash flow positive, then you’re +ve CF from -ve gearing.

However, if you’re +ve geared then you’re making a profit before tax. You pay tax on this, but never enough to take the CF -ve. It just reduces your after tax profit.

In most instances people tend to use cash flow and gearing interchangeably, but there is a slight difference. I’d consider CF as the more critical component as it determines servicability and therefore your borrowing power and potential leverage. Gearing just helps with CF when you’re -ve geared.

My 2c,
Michael.

Rob,

Sarcasm completely wasted… I can see why you want to be a storm trooper when you grow up now too [biggrin]

Its all becoming clear… Bruhahargh <– demonic laugh.

Cheers,
Michael.

Inez and Obiwan,

I like your style and tend to agree with both points of view. I’ve reached the same sobering conclusion that AussieRogue has, and that is that both shares and property are not looking like a good haven for my money right now. Rental yields have even dropped below share dividends and the median price is well above its long term trend.

I’m in to balance as Steven Covey and others advocate. So, I wouldn’t recommending ditching the job or education to risk it all in investments. I’m fortunate in that I have a Uni degree and have almost finished my MBA. I’m on a secure 6-figure salary with a global manufacturing company and love my work. At the same time I’m heavily in to investments and am not into wanton consumerism.

I just think that a good education and a good job are looking more and more like a great asset at the moment. My wife and I earn $200K a year on nothong down! Not many other asset categories can give you this. [biggrin]

Cheers,
Michael.

Wayne,

Thanks for that! And it shows house prices as flat from 1926 to 1946, only turning north after WWII. Its been a nice period in history with some pretty exciting advancements for humankind, but it is only a very small period of history when all is considered. To think that what we’ve lived through will continue indefinately does not consider enough of the macro factors I think. Even if it will continue, it still shows current house prices well above trend. The last time this happened we had a flat period for a decade or so.

It also shows rental yields having dropped below share dividends now. All the macro economic factors are indicating a prolonged period of house price flattening. Maybe up to a decade or so worst case.

There’s probably still opportunities out there but I wouldn’t bank on any CG in any of your IRR calcs before you buy. And, if you’re looking at rental yield only then its not such a good investment. The market, by necessity will need to right this imbalance before people start buying again. Its simple investment 101 stuff.

Cheers,
Michael.

Stephs right,

And the quick answer is No. I can’t see any benefit in cross-collaterizing loans. This just gives the lending institution more immediate options in clawing back in the event of default. Best to protect your assets from each other so you can decide which ones to divest in a worst case scenario.

Peter Spann has a whole chapter on this in his book and goes to lengths to explain how to avoid cross-collaterizing.

Cheers,
Michael.

Steph,

I’d think that if you wanted to develop the land at the back then you wouldn’t need detailed plans of the existing residence. You’d need a survey so that you could show the location of the residence on the block, but that’s about it. You’d need this for shadow diagrams and setbacks and the like, but unless you want to modify the existing residence then you shouldn’t need detailed plans of it.

If its architect designed then the architect should have a copy on file, and if its project/spec then maybe a set of standard plans could be sought from them anyway. Ours is architect designed and masterbuilt so we went back to the architect for modifications and he had the plans on file too.

Also, you’ll need to consider minimum lot sizes etc if you’re considering subdivision. We can’t subdivide our lot as its only 1500m2 (sounds big I know but a local council ruling says no smaller than 800m2 per block). We can however build a “Granny Mansion” if we so choose and are considering this for down the track.

Cheers,
Michael.

Wow!

Funny this thread should popu up this morning when I was about to post exactly the same thing anyway!

I went home last night and told my wife how excited I was at the prospect of interest free loans under Derivex and started talking about the implications and numbers. Not only was she “not excited”, she downright tore my head off. In fact I had to take our dog for a walk just to give her time to cool off. When I came back she was OK, but still thinks its a “too good to be true scam”. She may be right, but I’ll wait for some other forumites to progress with it to prove me wrong.

At least she is in to investment properties and is willing to buy some. But, turning willingness into execution is kinda hard. She’s a lawyer and I’ve told her I want her to buy “Trust Magic” by gatherum-goss so she can setup the trust and learn about all of the implications around structure for us. She’s OK with the concept but hasn’t actually done it yet. I’ll leave it a few weeks then follow it up. Might have to buy the book for her myself.

I’ve got to say though, that my wife is inspirational! I don’t look at her negativity as a chain holding me back, more as the voice of reason to temper my enthusiasm. If not for her I might bight off more than I can chew and be worse off for doing so.

Between the two of us its a happy balance…

Cheers,
Michael.

Robert,

What sort of trouble you talking about? Can’t imagine what trouble you could get in based on advice given that I’ve seen…

That’s a bugger if you’ve turned off email and PM.

???
Michael.

PS, I note the signature is gone too!

Gazza,

I’m with Terry on this one. But as always it comes down to how long you want to hold them for and what your plan is.

If you’re in it for the long term then you can ride out any short-term price fluctuations in the Sydney market. If you’re retiring in 5 years time then now might be the time to sell that fat asset CGT free and put it into income generating assets.

If its a long term play, then you really need to calculate the Internal Rate of Return (IRR) for both options factoring cash flow as well as likely capital gain.

Servicibility doesn’t sound like a problem, so maybe the IRR with the Sydney property held is better than the IRR on CF +ve properties after you pay tax.

e.g. $500K earning 3%pa CG is $15K pa tax free. 4 new properties returning $200 each is still only $800pw = $41,600pa. Take out tax at the top rate and your back to $22K odd, and then there’s 4 times the rates etc. not to mention purchasing costs and discharge costs and management cost… And 3% is very conservative when you’re thinking long term CG in Sydney. Of course the CF +ve might need to factor some CG in as well. But I reckon the Sydney property is likely to be 2-3% pa better than your CF +ve ones for CG.

Of course this is all just my opinion, but I’d hold it if I were you.

Cheers,
Michael.

Myydral,

Links no good, you sure that’s it?

Cheers,
Michael.