Hi guys
does a property need to be cashflow positive to be positive geared? From memory a negative or nuetral cashflow property can become positively geared once deductions and such are included..ie tax time. Is this right or am I barking up the wrong tree…
cheers[suave2]Originally posted by benno1:Hi guys
does a property need to be cashflow positive to be positive geared? From memory a negative or nuetral cashflow property can become positively geared once deductions and such are included..ie tax time. Is this right or am I barking up the wrong tree…
cheers[suave2]Hi Benno1,
that is correct, but true +ve cashflow occurs, once the rental exceeds all expense and running cost to keep and maintain the property, and at the same time, provide cash in your bank account each week…
Cheers,
sisSpot on Sis (as if you wouldn’t be!)
Positive gearing (a la Margaret Lomas), takes into account depreciation to make it +ve CF. The building needs to be post 1985 to get building depreciation and you need a Depreciation Schedule done by a Quantity Surveyor to get both building and Fixtures/Fittings depreciation.
The idea with positive geared props is that once you have dispensed with most of the depreciation (5-10yrs), the rents should have increased enough to turn it into a +ve CF property.
The trick is to find a +ve geared property with good yield and this will happen for you.
Basically it dispells the notion that you need older rural properties to give you cash in the hand. You can find +ve geared properties in capital cities – therefore CG should be higher.
Am I making sense.
‘Eat rich food, barbeque a yuppie’ [greedy]
Originally posted by Rugbyfan:
Basically it dispells the notion that you need older rural properties to give you cash in the hand. You can find +ve geared properties in capital cities – therefore CG should be higher.
I would ask where the positive cashflow is coming from – mostly rent or tax deductions.
Very few properties in metro areas would be positive after tax.
Those that are would be either new units (where there are big depreciation allowances) or short-term accomodation. The yield might be 3-4% and tax/depreciation benefits might give you another 5% (if you’re on the top rate).
The capital growth of these properties would not necessarily be as good as -ve geared houses in good suburbs.
Even some regional areas with neutral or positive properties might do better (especially if your income is average or less and you want to own several properties).
Peter
Peter
I take on board what you are saying but I think you may be missing my point.
Very few properties in metro areas would be positive after tax.I didn’t say positively geared properties were in plentiful supply in capital cities, but there are definately some in amongst all the real estate on offer.
Those that are would be either new units (where there are big depreciation allowances) or short-term accomodation. The yield might be 3-4% and tax/depreciation benefits might give you another 5% (if you’re on the top rate).True, but it will still turn out as positively geared. The units do not necessarily have to be brand new either. A 3-4 yo unit would still attract large depreciation.
The capital growth of these properties would not necessarily be as good as -ve geared houses in good suburbs.Again, you are probably correct, but if it is costing you less (than a house in better suburb) and making you money from day one, you are getting the best of both worlds. I never said you would get incredible CG, just maybe better than regional/rural locations
Even some regional areas with neutral or positive properties might do better (especially if your income is average or less and you want to own several properties).Do better in what way? Do you mean more money in the hand or CG? I am not advocating (like Ms Lomas) that people only buy +ve geared properties – just that there is the option to diversify your portfolio with more than just +ve CF, -ve Geared and neutrally geared properties.
I do understand that peoples incomes and situations preclude them from -ve gearing/+ve gearing many properties.It is my strategy to get properties of all these types in my portfolio.
‘Eat rich food, barbeque a yuppie’ [greedy]
Who Says You Can’t Buy Positive Cashflow Properties?
I’m not talking about buying way out in a mining town. My example is based on typical properties in one of our fastest growing shires, Caboolture. The only catch is you need to be a high income earner whose employer will allow you to salary sacrifice (refer kit at http://www.bantacs.com.au). The following is based on a couple where the high income earner earns $80,000pa and the low income earner has no other income than the rent. They own the property jointly.
House $230,000 Rent $210pw:
Income $210 x 52 = $10,920
Less Cash Flow Expenses:
Rates $1,600
Interest $230,000 x 6.5% 14,950
R&M 500
Insurance 400
17,450
Out of Pocket 6,530Less Tax Reduction 6,564
Positive Cash Flow 34Assume: Bldg Deprn $130,000 x 2.5% $3,250
Plant & Equipment Deprn 700Tax & Medicare on $80,000 $24,407
Tax & Medicare after introducing the
rental property & salary sacrificing
the cashflow expenses. 17,8436564
Inc ases where depreciation is used to make a negatively geared property increase your take home cash the correct term is Positve Cashflow NOT Positive Gearing.
Keep in mind that negative gearing is a viable stragety so long as you have the income to negatively gear.
Each negatively geared property reduces your ability to securitise the next…with positive gearing each property INCREASES your serviceability – thus you can borrow increasing amounts.
If you build a large negatively geared property & choose to retire you are in a situation where you lose the tax benefits & need a substantial amount of income – or to sell right down – to retire comfortable.
If your portfolio is positively geared you don’t have the same issue.
The aim with negative gearing is to realise higher CG than may be achievable with positively geared property…this is one of those ‘rules’ that doesn’t always apply
Best target is to have negatively geared properties turn positively geared over time…by paying down debt or due to normal rental growth or by improving/repurposing the property.
Always keep in mind that negative gearing is a short-term tactic NOT a long-term strategy.
Cheers,
Aceyducey
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