Positive gearing is better than negative gearing. If you had to choose between scenario 1, where you netted $1,000 a week, but had to pay 48.5% tax on the entire amount (so assuming you were already on the top rate of tax) or lost $200 a week, so gained a tax advantage of $97, for a net lost of $103 per week, which would you prefer?

Even taking into account things like capital appreciation, you don’t get your mitts on the capital appreciation until you sell the property. It’s a bit like the Docklands developments in Melbourne. People were buying off the plan for $500K like there was no tomorrow, thinking to sell prior to settlement and make a killing. Instead they’re having problems selling them and a looking at market rentals of $400+ a week. Sure, in ten years time they might be able to sell them for $800K, mirroring Sydney prices today, in which case the $10-15K a year they’re currently losing on them won’t matter.

Personally though, I would rather have a profitable property from day one, even if in the first week it only netts $20. The more you pay the taxman, the more money you make.

Hi Mel,

Cross collateralising is only a temporary situation. Once the IP has increased in value sufficiently, as per the bank’s valuation, to give you a 20% equity in the IP, the bank will unlink the securities, releasing your PPOR. Borrowing via a second product like asset builder is typically half to one percent (for the extra borrowings) more expensive approx than doing it this way.

One product I would recommend is getting a professional package. The Commonwealth and Westpac’s products are fantastic. Not advertised typically – you have to ask for them. The cost about $300 a year but they’re great. No application fees for the mortgage, redraw whenever you like at no charge, and half a percent interest savings (I heard doctors can get more) over the normal rate. We saved around $1,500 a year for a $300 a year investment.

Kat

I’m sure there are places in the capital cities with relatively high vacancy rates, including parts of the North Western suburbs of Sydney. And there will always be tenants who are prepared to move rather than pay more rent.

Talking of Pyrmont, I rented a place in Jones Street, Ultimo in the early 80s for about $130 a week or so, and was vaguely horrified (given the kind of 2 bedders they were – all concrete, painted, modern and no airflow) to see flats in the same block renting for $395 a week now. Yes, you could own a house on a main road in a traffic nightmare like Sydney, put a high rent on it, and three months later it still hasn’t rented. But it’s still possible to buy well in Sydney and make a reasonable return. Maybe not Steve’s kind of returns, but enough for the tenant to be paying at least some fo the principal off. You say:

“Simply put there will be less buyers and those left will find it much harder.”

But for those who have already bought and are currently landlords, less buyers also means more people (left languishing, unable to afford to buy) in the rental market. Not to mention new entrants coming to Australia every day. These factors mean upward pressure on the rent.

Vendors will find it harder to sell their properties, no doubt, but why sell your IP when people who would have bought can now only afford to rent, not buy?

Hi Redwing,

For decent properties well located, the rental market is always good, and when interest rates rise, they are akin to gold.

I’ve got a friend who has just spent 4 weeks – 4 weeks mind you – trying to find a two bedroom flat in the inner northern suburbs of Melbourne to rent. He kept missing out because heaps of other people were also applying at the same time. The newspapers down here are full of news of how the auction clearance rates are dropping. It seems to me fewer people are buying – or rather can’t afford to buy because interest rates have gone up so their deposit is no longer enough. Places like Ballarat and Bendigo are terrible for finding decent property to rent. I mean as a tenant rather than an investor. At the moment, in places close to Melbourne like Woodend, Daylesford or Trentham, you have to pay Melbourne prices for a decent place to rent.
Even if all tenants (obviously not the case) would prefer to own their own home, one of the main things that will be an obstacle to their being able to do this is interest rates going up.

Vendors are slightly better off. If they have sufficient equity in their properties, they can afford to ride out the slump in values. If they have to sell, then they may have to come down a little in price (e.g. Steve’s Blackburn house example, though I think this is more a case of over optomistic vendors rather than due to the interest hike fuelled slump per se).

Existing landlords should be rubbing their hands together in glee and laughing all the way to the bank. And if you are cashed up and can afford to buy into a cheaper market, go for it.

Cheers
Kat []

Hi Mini Mogul

Thanks for the links to the Rich Mastery sites. They were great. Not something I would do – I’d prefer to invest the finders fee by going to NZ for a month and looking for myself, but it’s a great idea.

Kat []

I don’t know that I would want to do this myself -Year 12 is a terrible year to be doing work as well as study – but how about something like tutoring maths? It pays reasonably well.
Also, door to door deliveries can be quite lucrative and keep you fit at the same time. 20 years ago, this paid $90 per 1000 drops. I’m sure this would pay much better now. 1000 drops was about 15 streets and took around 4 hours at a leisurely pace.
Good luck with getting a property!
Kat []

If interest rates do go up dramatically, rents will also go up. A vacancy rate of 2.9% in the Sydney market is healthy – I agree with Bill Moss. Why be pessimistic? Doesn’t it make more sense to assume that your property is going to be one of the 97.1% of properties rented rather than the 2.9% sitting vacant? Renting a flat, either in inner city Melbourne or Sydney, is a nightmare. 50 people come to see the flat – there are so many applications goodness only knows how the agent and landlord choose someone. The demand is huge. 35km from Melbourne, most houses and units are rented before the sitting tenants vacate, i.e. in their notice period.
When I was first looking for an investment property I started out looking at places to buy, but also looked at places for rent. Not because I wanted to rent one but because I wanted to see what was on the market at what price.

It’s easy to be pessimistic. As for those who lost on Henry Kaye deals, they’re victims of their own fear. Have courage, people. Take a risk. It will be the best thing you ever did financially. My first investment property paid for my trip to Paris, likely to be remembered long after I have forgotten the address of the property.

Kat []

Hi,
I’d sit tight and wait it out. It’s not losing all that much. And getting connected to the town sewer will be a great windfall. You’ve got decent tenants and the land is huge. Why not look at it a different way – $184K invested but, say, $90K of that was for the land, so $45K is really the investment in the half of the land you still intend to build on. So maybe leave that bit out of the calculations on the return for the tenanted part of the property. The guy who just bought our place is planning to knock down part of the house and build two more units on the back. And more power him if the council let him do it. But he says whilever he hasn’t built it’s going to be negatively geared. Even if all you do is wait for the sewer connection and get council approval for a house at the back without building it, it will be a much better invested.

There’s a guy down our street (35km out from Melbourne) who built a house on the back of his section – a pretty little thing it is, like a two storey chalet. He’s just sold it for more than the agent valued the original house on the front, which is twice the size of the new one.

In 20 years time you are going to own two properties outright, the latter fully depreciable, all on the one section and have a great independent income, probably at least $2000 a month if not more. The rent will go up over time and the interest part of the mortgage down. One day it will be positively geared, even if you do nothing from now on in. Why help the real estate agents earn money? If you want another property, just use the existing one as part collateral. You don’t have to sell it. Relax! Your property sounds good.
Kat

Would love a copy ….. [email protected]

quote:

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I have Property Manager Pro Version 3.14, I can email it (6Mb) if anyone wants it. Also heres a freebie, looks ok.

http://www.otter-software.com.au/Software/PropertyTrackerPages/NEWSBREAKNOWFREE.html

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