Hey,
I am on the verge of purchasing my first investment property, but have a huge dilemma. I have 2 options, both have what seems to be equal risk/reward:
a)
$70k property currently tenanted with good tenants returning $155 per week. This place is in a low-prospect small town with not much chance of capital gain, and once the good tenants leave, the possiblility of not such a good tenant pool.
Because of my ‘the banks’ situation, I will need a 10% deposit for this place.Note this is a positive cashflow property!
b)
$150-$170 property returning $240-$280 in an upcomming area (currently a bit crap, but has great potential). I will only need a 5% deposit for a house here, so my initial outlay will be about the same as (a), but under this option I will be topping up the balance.I am making a decent enough income, so tax savings are at the highest bracket, however I am reluctant to negatively gear myself, and am a firm believer that making a profit is better than saving tax.
Sorry that this is so long, but any advice would be much appreciated.
Thanks heaps
RobHi Rob
Which one of these two propsect (if any) will get you closer to your goal?
Cheers
Leigh K[biggrin]Hi there, as 1 IP is positive can you purchase both properties, get capital growth and $.
Hi,
what is the purpose of buying a property which might be positively geared if in the future you can’t find any decent tenants (or worst scenario NO TENANTS). On top of that your post indicated nil capital gain. This type of property won’t add very much value to your portfolio and could be a lemon in the not too distant future.[thumbsdown2]The other property although negatively geared offers you a better option — good tenants (hopefully), substantial capital gain, some tax breaks — and in the future once paid off (or at least nearly paid off) an ongoing income stream.
The alternative — is you insist on going the positive cash flow route is to keep looking[cap]
Anyway, just my thoughts. Hopefully others can shed some additional light[light] on your dilemma.
Lots of luck.
Regards,
HelenThanks guys,
Yeah I think plan B is the option more suitable to my goals, and I think after writing the post I pretty much answered my own question. I think I had my heart too set on getting a positive cashflow property that I was writing off all other opportunities, even those that are more suitable to my situation.
Thanks again
Rob
Good choice Rob, I had not read this thread until now but agree with yours and others opinions on this one.
Remember PPP
Positive cashflow is great but position is very important.
btw if I could find a 150-170 property returning that rental I would consider buying it myself [suave2]
David J
Licenced Agent/Sales ManagerRob
Is option B right for your goal or are you making it fit for lack of other option???? Just something to think about.
Cheers
Leigh K[biggrin]I agree with David – if I found property B I would look at buying it myself.. I don’t see that it would be too negative – if at all..
Cheers
MelRobsta,
you’ve said that option B is an up and coming area, but currently a bit crappy… I am wondering why you think a currently crappy area might be a potential area for CG. In July 2004, I am looking at “value maintenance” rather than CG, for the next few years. It’s just a thought, but crappy areas don’t just become good areas for no reason- is there potential infrastructure, or new industry coming into the area?
Option B might have other benefits for you- is it a post 1985-1987 building? Depreciation allowances might lift it to be CF+ after taxation benefits.
If you’re a firm believer in profit over tax benefits, seems like you’ll go option A. As for me, I would rather get $15k tax back, than get $10 a week (total $500) back on a CF+ property.
kay henry
Okay new guy here – but after just reading Buyer Beware and currently going through my first cash flow positive purchase – isn’t the WHOLE goal at the end of the day to generate passive income? Don’t get me wrong a tax right off is nice but it shouldn’t be the goal. The reason the majority of people invest is develop additional income streams, which one day will hopefully accumulate to be more than they get from their job so you no longer have to work. If I’m missing something here a negatively geared property is ALWAYS going to take you further away from additional passive cashflow, right?
As K said, focus on the goal.A negatively geared property should not stay negative forever…. Hopefully it’s in a good area, and you WILL get growth (over the long term, not just next 12 months).
In the meantime, rents do rise also over time, and so if you keep your payments the same, eventually rents will catch up and overtake payments, therefore making your property positive cashflow. If you are young and intend to work for another 10 or more years, or love your job and don’t intend to ever stop, then there is absolutely nothing wrong with this strategy…
I’m like Kay though – I love those tax cheques!!
Cheers
MelThanks again for all the replies everyone. Property B is looking much better now, excpet that it sold a couple of days ago! [wacko] but there are plenty more property B’s out there (I hope)
The area that property B is in is about to undergo a great deal of development (when I say about I mean within the next 10 years) but the long time frame isnt an issue to me as I intend to keep the place for the long haul, and as Mel says, it shouldnt be negatively geared forever.
I think if I keep waiting for the perfect property I will be waiting forever, I just need to bite the bullet and go for an option that best fits my future needs. [thumbsupanim]
I bought my first home at 20 years of age while most of my mates were peeing it up against the wall at the local pub, just do your DD and jump in.
David J
Licenced Agent/Sales Manager
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