Peter Spann

neg gearing blah blah…
pozz gearing blah blah…
offset gearing blah blah…

I put it to you all that if we could buy a million dollar house and rent it out for 2 million, then we would…

One has to buy the cheapest houses, pretty much, to positive gear, and not all of us want the cheapest house in the cheapest street in the cheapest town.

So for those of us who don’t buy the above, we pay more, and hope that the yield is as good as we can get.

I negative gear because I can’t get 10% yield on the places I want. Offest gearing means you buy the cheap high yielders, and the more exxy lower yielders. I doubt it’s much of a choice, and more of a reality.

What say you all? hehe. Oh, now don’t be like that… tell me what you REALLY think!

kay henry

Here’s a cut and paste of an article I wrote (also posted in another forum).

Here’s my view on negative gearing – I “tolerate” it because throughout most parts of the economic cycle what I consider to be the best properties (high growth properties close to major population centres) will come with a return ratio that means your costs to own them (especially if you have a high LVR – and for me and most of my clients that means 100%) will exceed your income – ie they are negatively geared.

In about 3 or 4 years out of 10 the type of properties I buy will be neutral or positively geared. The rest of the time I have to accept that I will be required to “kick in” some funds into my investments.

I am not prepared to sacrifice quality and growth for income as I believe in the long term growth will far outweigh any meagre income I receive from property.

To me, there are far better ways then residential property to generate income. (I know that this is a controversial statement in this forum but before you jump on me please see my previous post about ways to skin a cat).

And that leads me to what I think is my “rather neat” way around the quandary of negative gearing…

Because I don’t like being tied to working for a living (even though I do), I subsidise or in fact totally off-set my costs in owning residential property through higher yield investments – shares, commercial property trusts, trading, high yield funds, etc.

Lately I have turned more and more to commercial property trusts – they are easy to find, have simple leverage through margin lending and if selected well offer good long term growth and excellent income. Their primary downside is volatility (ie – they go up and down in price – a LOT).

That way I get to own the “best” residential property for “free”. (Well at least no cash outlay from my pocket).

This doesn’t suit everybody but I love it. I leave the management of my commercial property investments (all through trusts – none direct) to people like Frank Lowey, get a rate of return that exceeds any interest that I pay, I use that surplus cash flow to fund the negative gearing on my residential properties and use growing equity in those properties to keep buying more – seems like “free” money to me. And, after a couple of years the banks will take into consideration the cash flow from the commercial property trusts when calculating serviceability.

Also commercial property trusts are counter cyclical to residential property and tend to lag behind the share market so that means when the yields are low from residential property they tend to be (but are not always) higher from commercial property, and when I don’t need the income as much because my residential properties are getting high yields, the income from commercial property is suffering. Same counter cyclical effect with the growth – when residential is growing strongly, commercial tends to be down and vice versa, thereby smoothing returns and lowering risk.

I describe my view on this on page 14, 15, 136, 137, 138 and 139 of my new book “How You Could Build a $10 Million Property Portfolio in just 10Years”.

Oh, I have to add – commercial property trusts are like shares – it really helps to know what you are doing – if you are unsure seek the advice of a licensed financial adviser.

I hope this helps.

Disclaimer: Peter Spann is an Authorised Representative of Freeman Fox Securities Limited, the Holder of an Australian Financial Services License. The material in this article is of the nature of general information only and neither purports nor intends to be advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. Investments can rise and fall in value. The decision to invest and the method selected is a personal decision and involves an inherent level of risk. None of the information in this article constitutes, and must not be construed as, an offer of securities or other financial instruments. Nor is it an invitation to you to take up securities or other financial products. Nor is it a recommendation to deal in any securities or other financial products. Before making an investment decision on the basis of any information presented in this article the investor or prospective investor needs to consider, with or without the assistance of a Licensed Financial Adviser, whether the strategies are appropriate in the light of their particular investment needs, objectives and financial circumstances. Peter Spann, Freeman Fox Securities Limited and their associates may hold shares in the companies presented and will be entitled to commissions on certain products. While every effort is made to ensure accuracy the laws and strategies relating to investing, financial services and taxation are constantly changing as does the factors that effect the likelihood of investing success for example, but not limited to, the economy, government policy, market sentiment, and time, therefore the writer does not warrant or guarantee the accuracy, voracity or timeliness of any of the information presented. Any examples presented are for illustration purposes only and previous results are no indication of future profits.

[drummer] DITTO!!![drummer]

WOW!!! Peter: that’s some reply. Now we all know what to aim for[thumbsup2]

The strategy that you outlined in your previous post — is this contained in any of your home study courses.[grad]

Secondly, could you briefly expand on a few of the points raised in an earlier post.

When you say bargain prices — how far below recent market levels are you purchasing. (Your example of the $5 million property bought for $2.8 million is astounding).

By this comment do you mean that you simply put the squeeze on a vendor?[blush2]

Could you expand on your comment.

For us novices — in what way are YOU poised to take advantage of a changed market.

Only fixed interest rates — what do you know that we don’t.[blink]

Peter — hoping you will take time out of your busy schedule to inform and educate.[upsidedown]. Whatever information you are able to provide is greatly appreciated.

Regards,
Helen

No sorry – this is my “latest” strategy developed after I completed my Diploma of Financial Planning and started working with clients on their day to day investing – WOW what a revelation that was – you mean people don’t actually do everything I tell them exactly the way I told them to and have their own opinion on things – amazing!

It became obvious that despite how easy and fun I find it, not everybody is suited or could be bothered committing the time to learn options. That put a “cash-flow” hole in my strategy for many people so I needed to come up with an answer to that.

Also, I have been hanging out with a number of my wealthy friends’ financial advisers – WOW what a revelation that was – you mean all these people I thought were mega-successful at their own investing actually had other people doing it for them so they could focus on running their business and spending their money – amazing! And now with 15 years of experience I was able to see some of the distinctions and nuances of their strategies I simply wasn’t able to understand before.

Adding all that together I have developed my “upgraded” investment strategy which is starting to filter its way through to my books, seminars and most importantly wealth strategies for my clients now.

Not necessarily – the market is doing that for me in many cases, I’m just along for the ride. But there is no doubt that a good negotiator can do better without trying to unduly “squeeze” people.

Have a read of Wayne Berry’s excellent books “How to Get the Best Deal Every Time: Without Rubbing People the Wrong Way.” And “Negotiating in the Age of Integrity.”

They are superb and will really boost your success in negotiating without lowering your ethics.

Simply by buying bargains when they present themselves and having sufficient funds set aside to ride out and bumps in the market that may occur in the next few years.

Peter!!

thanks for a detailed reply to my questions. It’s really appreciated.[thumbsup2] Your take on interest rates is particularly illuminating.

Regards,[cap]
Helen

Hi Peter,

I third that – thanks for taking the time to help us out and ur replies are a wealth of knowledge…looking forward to your book – when is the big day of the release to the bookstores?

Many thanks

Kind regards,
George.

I’ve found a way to help you save and earn whilst not selling or delivering any product. If interested, drop me an email or PM me to find out how

Thanks for your excellent responses Peter.

I’m pleased to say I’ve finally finished your book (will be re reading shortly), and really liked the part where you explained your opinion on negative gearing and positive cashflow. It reaffirmed what I’ve been doing for the last 10 years (only 5 of them seriously though)…

I don’t think you’ll get kicked off this forum though [blink], there’s quite a few of us that enjoy spending time here, but aren’t quite on the ‘positive cashflow is the ONLY way to go’ bandwagon.

SIS, once you read Wealth Magic, you definitely need to buy the latest one – $10 Mil property in 10 years… Also, talk to Jet – he’s done quite a few of Peter’s courses too….

Cheers
Mel