If interest rates reach 10%, almost all currently positive or neurtral properties would become negative.
But I would much rather be paying the small difference between 10% interest rates and the 8-9% yield on my regional city properties than between 10% and the 4% typical with a capital city property.
The tax back would be less, but then less money would have left my pocket in the first place [
]A 2% margin (plus other holding costs) would be only a small hardship that could be funded through modest reductions in other investments. But apart from that it would be ‘business as usual’.
However a 6% margin would be harder to cope with, especially if work income is average or less. If this difference is sustained or you lose your job, there might have to be asset sales – not good!
So I would say that negative gearing at the end of a boom where yields are historically low and interest rate hikes are in the offing is high risk.
Going for yield, especially if properties are low-maintenance, well-located and situated in regional cities with strong rental markets, population growth and/or high average incomes, would have to be lower risk.
Peter
Fudge & Fields
I am with fields, i mean, sure the more positively geared the house is the better, but you know, more important things should come to mind such as location etc.It all depends on why you invest, certainly the older members of teh forum invest for positive cashflow – afterall this is the home of positive cashflow investing, and yeild is important to us, we want an income. And you are right that location is important but not so much from a growth perspective for us. Thats why everyone promotes due diligence so strongly.
You are both saying go for growth, but if rates rise and property slows isn’t growth going to slow and rental demand increase. I think if you can buy +cf in this market with a good yeild now then any rate increases and slowing growth will be easier to manage. I have 1 -geared unit in Rosehill NSW (near Parramatta), we haven’t had a rate rise on this property yet but I already begrudge forking out MY money to pay for it. I hate to think of how we will go when our current rate buffer at the bank is reached.
My husband and I set up a company trust a few months ago to purchase our properties and we are in the business to MAKE money[
]Cheers
Leigh K[]Carve your own path and lead the way …
Hi Leigh
What you say is very true, i don’t doubt that it’s just that I don’t want property investing to take up all my spare *Time* when the whole point of it is too really increase *free time*
Sure, your approach is fine and probably will pay off alot more than mine, but it’s basically a case of more effort, more returns i spose. I can still retire at around 43 with 110k a year if my plan runs smoothly, you can see it from my spreadsheet, however, it takes alot of sacrificing in early years of your own income, but if you can do it it will work too.
Due diligence has to be something every property investor must do before they invest, no matter what strategy is. Definately it would of prime importance of the +ve cf investor and probably has a bit more emphasis on it then someone using my strategy, but i will still need to do a comprehensive due diligence before purch any property, it could save you thousands of dollars of costs in the future.
Fudge111
Hi,
Very good debate on as i understand, + versus – versus other type of investment or none at all.
Hard to comment as everyone has a differnt opinion or strategy. Bottom line is to stay out of bad debt or to go bankrupt. And the upside is to become financially secure and happy with what you are doing. Along the way learn everything you can to achieve your goals and enjoy our short life on this planet. For me Property investing has been with me for 15 years and has worked for me but my success only came with time and experience.I have only learnt + PI in the last year and even though i knew it was their along time ago i needed to have a website like this to show me the benifits.
Good luck everyone with your goals.
[
]Totally agree comdom
Everyone will differ in their opinions, but good luck to everyone in their property investing goals.
Basically forum is about a group of like-minded (to some degree) people coming together and trying to help eachother be successful investors, no matter how we want to go about it.
I think sometimes people are a bit too critical of other peoples strategies, we need to give helpful advice without just thinking our way is the only way to do it.
It is probably the best and most useful forum i will ever find in my life on this earth!~
Fudge111[
][][]I so agree,
No one method is better or worse. I can show you different people who have gotten a method to work. It all depends on what you’re comfortable with. I mean reno’s didn’t work for Steve but they certainly did for others.
It can even work for lotto numbers based on the stars……… althogh not too often.
Josh
Evening all,
Well…..first of all, quiet a big response to this now swinging debate. Before i try and answer a few replies i wish to make my thoughts clear…
I myself, currently own +ive cash houses in both regional and deep rural sectors. They, in the past few years have paved the way as a great income-stream tool. Like you all i just have my opinions.I guess the my main argument is too be careful and not get sucked into the +ive cashflow environment due to something you have read and heard. I know i have harped on Steves book a little now, but i think its important that people are not driven to a fairytale that is now already 4yrs old. Houses in ballarat and bendigo are now 170+ not 60-80 like they were 3 yrs ago. Places like Nhill cannot be put in the same catergory as these, they are 6hrs away from the city and dying not appreciating in capital (TheENJOYlady ask the agents and ABS about the declining population).
Richmond if you dont think rentals are decling you must have been asleep for a couple of years. The new home buyers grant and property boom has paved the way,for once tenants to now be owners. you need only look at the Stamp duty revenues. However as rates rise lets hope more people rent….or will they just stay in there own home?? If you need stats go to your nearest agent and ask him how rentals are this month or even visit the ABS site…
As for wraps, yes i believe they are a good tool for the eldery but not for the young. They only stream income for a certain time span – and when thats gone so is your house – no future wealth there!!!
Capital, i believe is the main success to wealth. having said that, i dont drain myself in -ive gearing loans. Negative gearing in a lightly mannar, will far outway +ive gearing over a decade. if you dont believe so, go to a book store and see how many people have made it rich through positive gearing – the number is far from that who have bought for capital gain. Steve got in the market at the perfect time for the +ive gearing caper……now is not! People who strive to be like him in todays future should stop and think…the market has changed, his four year old storey doesnt compare with todays….
Be smart people and invest with caution (not 6hrs from cbd) wealth comes in time not positive cashflow houses or wraps that cease to exist in future years….Just my thoughts on the +ve cashflow debate
fields, just quickly,
“see how many people have made it rich through positive gearing”
there can never physically be as many doing +ve gearing as negative, because only about 10 percent of properties would be yielding enough to be positive cashflow – so there just won’t be as many people making their money this way.
In a way, it’s true to say that Steve’s method does work – and anyone can do it – but not EVERYONE.
!!! That’s just the market, like saying, get into the consumer health area i.e. boost juice etc and you’ll make a fortune. Yes, but only until the market is saturated.
Most people don’t even know it’s possible to have a property that makes money from day one.
The reason why a positive cashflow return of 20 percent with cap growth of 4 percent is worth more to me than capital gain of 20 percent with a 4 percent yield is that a) a dollar now is worth more than a dollar in the future b) cashflow adds to my serviceability and means i will be able to get a second property faster b) debt is paid off faster meaning more equity, less risk, etc etc c)less costs accessing the return – with a +ve CF property, the money’s in the bank, end of story. Cap gain property you’d have to revalue, refinance (which costs$$) or sell (loses your $$$ in tax) to get at the money.
As far as wraps go, it’s just a way of getting good CF+ve returns in a time where ‘buy and hold’ returns have been lower.
that’s all for now
cheers-
mini
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