Hi all, i have a question that you may be able to answer (or at least clear it up for me)
When i went to the Richmastery Investment seminar they basically taught – neg geared, pos cashflow in after tax dollars.
After seeing Dolf DeRoos last night here in canberra, his software and pitch was the same.
My question is this. Once you have no more personal tax to write off, what then? surely you cant continue to write off tax you dont have on your income, or am i missing something?I don’t think you are missing anything, there is a limit to how many properties one can structure like this and that depends on your taxable income.
Yes this is correct.
Even though you can’t have an infinite amount of properties they generally are in higher growth areas .
The only disadvantage is that you must have a secure income stream.But how many properties do you really want? and will you have the time to look after all of them … (trust me something ALWAYS goes wrong… the more you have the higher the risk too
)Pin
P.S: When doing calculations you must use your income NOT your tax bracket as the more -ve geread +ve cashflow you have will change your tax bracket…
*********
http://members.freeib.com/?mforum=generalinvesting
General Investing Forum for the Best FREE general investment information.
ALL welcome!Thanks for your input.
i have a good accountant who checks my numbers before i buy, i question the accountant all the time. as for how many properties, as much as my equity and cashflow will allow at present. when i refinance next year i will have around 80k left to play with.
i have a secure income stream (i’m a public servant) so thats not really a problem. i have just been questioning what i’ve been taught, before reading steve’s book.
my object is to quit work, so pos CF IP’s is the way i will have to go, if i want to achieve my dreams.Shaun, Dolf has never had a job in his life, so no income to offset from wages.
If you concentrate on places with lots of depreciation, you can turn what is a positively geared property before tax into a negative one after tax. This means $$$ in your pocket, and no tax to pay. This could also help to offset other $$ positive places where there isn’t much depreciation.
Cheers
MelPositive 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 Shaun,
I guess it depends on your plans for the future, really…
If you were looking for income to take the place of your salary (so you can quit!!) then you don’t want properties that REQUIRE you to have a job. If you decided to leave your job, then they wouldn’t be positive cash-flow anymore, would they?
I don’t think depreciation is the be-all and end-all of property investing. And you never know when the government might change the rules again…
Anyway, just my 2 cents worth. I always thought an investment property should stand on its own two feet!
Lozza
Melbear,
i know what your saying, i did that with my place in queanbeyan (though accidently and clumsily).
I guess i am just trying to formulate a plan
which is as follows:
until market correction neg/pos CF IP’s until no more tax to pay.
refinance using melbears theory (throwing some of the equity money into the loan to pay for neg balance)
then use monies left over for pos cashflow.
my concern is the RBA recommendation into tightening depreciation laws in australia. that would hurt big time, so i’m not sure if i want to go this way, or just refinance the IP (capital growth of 38% in last 3 months)
pay out the LOC i have on PPOR (38k)
then just have a LOC waiting to go when the market corrects itself, then buy pos CF IP’s
what do you guys think?It’s just a recommendation from the RBA, and they don’t make the laws.
I can’t see the rules being changed.
Shaun, remember that you cannot refinance the IP to pay our your PPOR loan unless that loan was for investment purposes!!! I can’t remember if it was or not.
Nowhere in my post was I suggesting negative gearing. My post was discussing turning the positive cashflow before tax, into a neutral arrangement after tax. A profit, but paper losses to turn that into neutral or negative – no tax to pay.
Shaun, if you want to keep working for a few years (even if you get this new job and have to actually do some WORK), then purchase some properties like your Darwin one that are close to break even, and have masses of depreciation – ie new. Use your tax savings to either purchase more, or to pay down the loans so that eventually they will be neutral or positive.
Cheers
MelI understand mel, and i’m sorry if i came across as bullish or anything. i was just remembering what you said once at a meeting, where (if i remember correctly) was to refinance the IP to 80% then use some of the money left over in an account to pay the neg gearing for the year.
anyway,
the other way i was thinking was this:
ip in darwin owe 159600 (renting at 265 p/w)
PPOR owe 38000 (money was used as deposit on IP)
move out of my PPOR and rent
renfinance PPOR for 110k (then renting it at 180 p/w)
then use the 110k to repay 38000 and 30k on IP in darwin and PPOR.
would equal two pos cashflow properties leaving me with 52k to use on more IP’s.
disadvantage would be paying rent.
the PPOR loan was used for investment purposes, so i’m ok there.
i guess i’m just trying to set myself up and work out a plan on which way to go next. i only sort of have a plan so i need to sit down and work out exactly what i need to do. i appreciate all your comments (every one who has written here) and would just like your idea’s and comments on what to do next.Shaun, don’t focus so much on individual properties. Look at the overall portfolio!
If you refinance your PPOR, then use all of that money to buy +ve properties. Then you may have some -ve properties, and some +ve properties, but when you add them all together, you should come out +ve.
I’ve got some of each, and don’t worry particularly about any particular, but as I said, I add them all together, and assess what I need to do from that vantage point.
Cheers
MelP.S. You are right about what I said re the extra cash to cover any shortfall, but that was not in context with my comments above re the +ve property, and avoiding tax if you are in a portfolio +ve cashflow situation.
Thanks mel, as always you are a wealth of information.
ok, the plan now is (subject to the accountant not calling me a tosser)
january – refinance IP in darwin to 80% (leaving me with 24k after loan payed out)
refinance PPOR to 80% in a loc, so i can wait to strike (80% – 38k i owe = 90,000)
24k + 90k = 114k.i wont rent just yet, so when i get new job, throw money into savings like a man possessed.
if i need more money then i will move out, and just keep the one property neg geared by refinancing to 80%
by doing this i can get rid of the cross collatorisation i currently have and reduce the amount of interest im paying (7.79%)Shaun, sounds like a reasonable plan, as long as you do not spend any of the money on non investment things. Put all money pulled in from refinance in LOC on PPOR.
If your accountant calls you a tosser, move on, there are plenty of them around.
Cheers
MelThese are just general comments ….
Some of you have mentioned loosing your “job” as a bad thing… might be a good thing [
].What I said is you must make sure you have a “secure income stream” this does NOT mean you must have a secure job… definitely NOT!!!
Let me give you an example… If you have 10 properties with equity of over $100,000 in each then you would only have to sell one property every year to get $100,000 a year for the next 10 years… Now obviously you reinvest some of that and keep the ball rolling… This is a very powerful concept I will leave you to think about…
******
Please!!!
The more you pay the taxman, the more money you make.STOP saying that!!! I know what you are trying to say but I honeslty hope you don’t actually believe that!
balance your portfolio with a few negative gear positive cashflow properties…
melbear is exactly right when she says (I will quote it because it is worth reading again
):
Shaun, don’t focus so much on individual properties. Look at the overall portfolio!If you refinance your PPOR, then use all of that money to buy +ve properties. Then you may have some -ve properties, and some +ve properties, but when you add them all together, you should come out +ve.
I’ve got some of each, and don’t worry particularly about any particular, but as I said, I add them all together, and assess what I need to do from that vantage point.
And I might add “you should come out +ve” AND pay less tax!
Pin
*********
http://members.freeib.com/?mforum=generalinvesting
General Investing Forum for the Best FREE general investment information.Hi Everyone,
I have just been reading all the interesting information on this forum.
I am fairly new to this but am in need of some advice.
Our situation is as follows.
We own our own home and owned a coastal acreage.
We started seriously investing in property 3 years ago where we purchased 2 negatively geared houses in popular areas of coastal NSW. Both have showed good capital growth and have doubled in price over the time.
Since then we have sold our acreage and purchased two blocks of land at Hervey Bay which also a shown good capital growth. We own both of these.
Later this year we have purchased another rental house in Qld and 3 more blocks of land for low prices which we intend to build rental houses that should we hope prove to be positively geared.
We decided to do this after reading Steves Book.
To purchase these additional properties we needed to borrow on the equity in the increased prices of our negatively geared properties.To finance the cost of building a couple of houses on the new blocks of land we have applied for a line of credit to fund these.
Now our major problem, which is becoming the family argument, is how to reduce the debt once the houses are built. ( Getting a builder at the moment is the hard part. So we thought of owner building, which we have done in the past.)
My partner wishes to sell our family home to pay outright for the two new rental properties so we will own them outright and also to reduce his work load. This was inspired by Steves Book. Thanks Steve.
But I love our family home and wish to keep it.
Hoping someone can offer a solution as to how we can keep the family home but reduce our debt. If we sell a property we end up paying most of it in CGT.
Overall, what we are trying to achieve is about 10 positively geared properties, including the family home, from which we can derive an income from in retirement.
I am still a bit confused about the concept of refinancing but have posted a message in a separate forum listing which I hope can help in that area.
Looking forward to hearing some ideas.
Peter Gmelbear, and pinnit
thanks, i just wanted to bounce some ideas off people here, as for the accountant, he is pretty good. he only calls me a tosser when i think up some hair brained scheme to avoid/reduce tax. nothing wrong with that its just that i dont pay enough tax now to justify spending heaps of money transfering properties into a trust fund. when the accountant told me that (and showed me the numbers) i had to agree. he specialises in trusts etc here in canberra, so he must know what he’s doing. i also like the idea that he’s not a yes man, and is looking after my best interests .
thanks boys and girls i appreciate the information you’ve given me.
will sort it out in january. I have spoken to (what i think) is a decent mortgage broker in turner (ACT) and he said to get a plan together then come and see him, hence trying to work out what to do next.Peter G, if you sell your family home, where will you live? I’m assuming that everything you have is in your own names at the moment?
One option for you is to turn the family home into an investment by creating, and then selling to, a family trust. It will borrow the money to buy it from you, and then you will rent from the trust (pay market rates, or enough for it to pay for itself). You then can use that cash to pay down some of your personal debt, if that’s what you wish to do.
I would suggest to talk to an accountant, and check out some books on trusts etc. Dale Gatherum Goss has an excellent, easy to read manual called Trust Magic (and one called Tax Battles) available from http://www.gatherumgoss.com
Cheers
Mel
But how many properties do you really want? and will you have the time to look after all of them … (trust me something ALWAYS goes wrong… the more you have the higher the risk too )Pin
If you have 2 IPs and one of them turns out to be a constant problem, then 50% of your portfolio has gone sour. On the other hand, if you had 1000 properties, I don’t think it’s very likely that 500 of them would give you problems.
What I’m trying to say is that I think the more properties you have, the lower your risk.
-Ian
ian,
I was not talking about pecentage terms but “likelihood”.
The more properties you have the greater the risk that at least one of them at any point in time will go wrong…
I am not talking about something major, just little things… things you need to attend to… things that just require a lot of time….
Pin
*********
http://members.freeib.com/?mforum=generalinvesting
General Investing Forum for the Best FREE general investment information.Dear Mel,
Thanks for your ideas. I will have to find out more about trusts. I have been reading about them in other areas of the forum.
My accountant advised us to stay as individuals as there were better tax advantages and less paper work as compared to either a trust or company structure.
After reading many books from Steves to Jan Somers etc where there are many different ideas it is sometimes difficult to know which way to go.
Peter G
)
].
You must be logged in to reply to this topic. If you don't have an account, you can register here.
