Hi I have been reading a lot of property investing books over the last couple of months including Steve’s new book 0-130 properties in 3.5 years .
I really like the idea of positive cash flow investing and will use it but I do have some unanswered Questions.
Steve basically saying that Negative gearing is not all it appears and that most of the profits are eaten away by inflation.
But negative gearing seems to be the way that most books like (7 Steps to Wealth) and (Building Wealth in changing times) are teaching.The basics of these books go as followed
Buy 7 or 8 N/G medium priced houses in Capital Cities over a 10 or 12 year period at the end of that time sell 3-4 of these investment to pay off the loans on the others and retire on there rent
So is Steve saying that the long term N/G for retirement strategy does not work at all?I can understand that if you sold all the properties and tried to live off the money from those sales then yes you would not last very long and would have to go back to work .
But can these other Well known books have it so Wrong?Taking into account the well known rule “don’t put all your eggs in one basket” I would prefer a mixture of both P/G and N/G investing for retirement income
Has Anyone else read these books and have comment ?
Or Maybe Steve can clarify this a little more ?
Thank You [
]Hi Nativemetal
some thoughts i have about your post. The strategy of buying multiple properties (say 8-10) if you could afford the repayments was a great stategy to use 5 years ago and those who bought in capital cities have done well for themselves. But what about the future with N.G properties they have to appreciate faster than the cost you are incurring in owning them. If the market remains flat you actually lose money.
The great advantages of Cash positive doesn’t come at the expense of Capital gains (although historically properties that are cash pos.have had lower capital growth).
A wise investor can still buy cash positive properties and have capital growth. i haven’t finished steve’s book yet he may say this but another advantage is you can keep buying more and more proerties if they are cash pos. My income (job) is only about 45k yet i have over 20 properties. i could afford 1 NG property. Today I have control of about 1.8 million worth of property. as well as making an income from the houses if they appreciate at say 5% on the average for the next 10 years my properties go up 90k each year, thats better than working. I actually expect to make more that 5% because of the areas i’m buying in.
So i will make cash from the properties plus i’m having capital growth. You can get the best of both worlds.
So yes NG worked well in the past but what about the future ?
So rather than a mixture of NG and Pos properties i’ll buy cash pos that will have capital gains.
Regards westanI have been caught by the negative gearing trap although the properties I have got are experiencing good capital growth….in this current market cannot always be guaranteed. Positive geared property unless wrapped/optioned etc is reliant on acceptable rental income being maintained to meet at least the 11 sec rule if not more.
My thoughts on negative gearing are that rental prices are set/propagated by Real Estate Agents. In the majority of cases (at least here in QLD), the properties are not only sold by the agent but are then rented out by them.
Now the real estate agents I believe, sees the management money from rentals as turnover and critical to them in the lean times. Therefore it is in their best interest to keep the rentals at a low price…maximising turnover monies. Some argue that as they are percentage based, that is, the higher the rent the more money the agent gets per property that the system works in reverse. I believe that argument to be flawed as technically rental income is not their core income rather it is turnover/negative based cash flow during lean times…….much the same a negative geared property deals….they just give a pro-rata return while waiting for times to get better when it is sold for profit or ..core money.
I wish I knew how to beat the agents when it comes to rental return as they certainly set the stakes. Anybody else got thoughts on this?
I personally think that negative gearing still has its place.
Generally speaking good cashflow properties tend to have not so good capital gains. Properties with good capital gains tend to have bad cash flow.
If you have a good cash flow from other income e.g. you day job or other positive rental properties, then the capital gains from a negatively geared property could be very worth while. The value of the property may go up $20k, while you negative cash flow is only -$10k, which means that you have gained over all. The difficulty is that the gains in this example are not in the form of cash (unless you refinance) so in cash terms you still loose out by $-10K. If your other income was 35K then you could only own 3 properties before your maxed out your cash.
Which is correct depends on your circumstances at the time. Are you cash rich? If yes then consider negative, otherwise go for positive.
A combination of 2 or 3 positives to 1 negative may give you a good combination with neutral cash flows (and tax refund after taking depreciation into account).
Andrew
http://www.rentmaster.co.nz
Software for LandlordsHave been caught a little bit with the negative gearing hype from one angle. My DSR is almost in the difficult area according to the Bank. Therefore to go on and add to my bottom line and afford more properties is not realistic in the very short term. My spending power is finite if I proceed with -ve gearing. By the same token my equity through capital growth is above $300k is the last 3 years max. In nett salary terms I go to work for nearly 8 years to achieve the same result.
One of the 0-130 bits of information that struck a chord with us was that if you are seeking Capital Gain, then the future value of the dirt or land in the property purchase is paramount. Whereas if +ve cashflow is the goal, then relationships and rentability are the objective.
Negative gearing is not dead but 0-130 helps to clarify and re-focus our energy toward our original goal. That is to retire earlier than 65 with an income stream. Upon reflection whilst the cap gains have been great, this is moving away from our original objective-maybe carried away with the hype of living in a capital city and watching the cap growth around us hey!
]
The topic ‘Negitive Gearing Dead ?’ is closed to new replies.
