Imagine a man sitting at a desk holding a piece of paper. It says ‘Rental Income $2000, Interest $15000, shortfall $13000’. The caption below it says ‘but I thought negative gearing would make me wealthy!’.
Got to the point real quick I thought.
No it’s not out of Steve’s book, but from Noel Whittaker’s ‘Making Money Made Simple’ (2nd ed, 1988).
Though he doesn’t mention positive cashflow in that section, he mentions that people can do well if ‘rents are higher than the loan repayments’. So he does not dismiss negative gearing, but is cautious about it for the beginner.
More recently (in ‘Borrowing to Invest’) he seems to be going for negatively geared property in the city ‘it is unlikely you will find solid investment property for under hundreds of thousands’ and says cheap properties attract low rent and have low cap gain potential.
But overall as discussed elsewhere Noel is lukewarm about property, especially in his more recent books.
He also makes use of asset allocation ratios from fund managers who have property as about 10% of the portfolio (as if fund managers were all-knowing on such matters). Also he mentions you need 6-10 properties for diversification, which is fair enough, but difficult to achieve with neg gearing.
Despite his biases in favour of managed funds, I think Noel deserves credit for explaining money to Australians, more than ten years before others like RK became known.
Peter
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