neg gearing

Hi John,

I come from a property investment position that good quality property in good locations is my first concern. I also recognise that I am investing to make money rather than saving tax – any tax savings are considered a bonus.

For this reason I buy with a long term perspective and on the understanding that there will be flat periods and there will be good periods of growth (and don’t anyone highlight their growth in outback properties – to me the risks are too great buying, selling and renting in out of the way places – I am of the opinion the property bubble is more pronounced in these places than the metropolitan areas)

When buying I consider the long term growth prospects first and then look at the cashflow scenario second. Any money that I am required to put into the property is considered in light of my total situation and includes, impact on borrowing capacity, what the property adds to my portfolio, what is the alernative use for the money required to sustain the property and can the budget sustain it.

Using other complementary strategies such as PAYG variations, depreciation reports, interest only loans, considered expenditure at home, surplus funds in line of credit and redraw account for emergency situations and so on I know that I am able to sustain any purchases before I embark on the journey.

If you choose wisely and manage your property actively through your PM you will find that rental returns do improve and a negatively geared property need not be negative for a long time.

Running alongside this I also have some funds invested in an income producing share fund and have recently provided some development funds to a commercial development in satellite city centre in the Perth metro area that are projected to provide very good returns over a two year period.

Having said all of that – your strategy needs to fit your goals and for me I see greater certainty in metropolitan areas.

I cannot add comment about South Blackburn as I am not familiar with the area – however there are few Victorians who visit who may be able to provide detailed comment about the area.

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

Hi Jo,

Thought you would have something to add on the area – that is a good thing[exhappy]

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

I would say that you’ll spend a lot of time –ve geared before you see those capital gains again. Although I know people who bought at the very peak of the last boom and today are way in front.
I personally would wait a bit longer (i.e what’s the rush to –ve gear?). Wait for vacancies to tighten up and possibly rents to trend upwards before I’d buy again in typically –ve geared territory.

Gambini,

I don’t understand!!! You’re saying neg gearing is only if you’re chasing CG, but that that should be a “bonus” but if there was no such “bonus” (ie. CG) what other reason would one have to invest using this type of strategy??? [blink]

Jo

Hi Derek,
A question for you…

quote: I also recognise that I am investing to make money rather than saving tax – any tax savings are considered a bonus.

Does this mean that if negative gearing was abolished .. hence no tax refund to support your neg properties, you would still hold onto them on the basis that the anticipated capital growth would outstrip the loss you are incurring ??

Also, at what point would this cash outflow inpinge on your ability to keep accumulating additional property ?

IMO most neg gearers would quickly re evaluate their strategy if there was no tax refund to go with the rent to support a neg geared property, therefore the tax refund is an integral part of the equation and not merely a bonus.

KP

Hi Kp,

Even when negative gearing was abolished in the mid eighties it only applied to people who bought property during that period of time and, in the main, it is rare for tax adjustments to be retrogressive.

Something else often overlooked by people who use the what if negative gearing was abolished line is that – the removal of negative gearing in the mid eighties coincided with the recognition of depreciation (at 4% then) during the same period and a 40% explosion in public housing waiting lists in NSW alone which caused an increase in rental returns at the time.

I understand (and I stand to be corrected here) that when the ability to claim interest costs was reinstated in late 1987 investors were able to redo their previous tax returns to include the period from mid 1985 – need to check this out but reasonably confident.

People should also understand that the ability to claim interest costs is a legitimate business deduction and has been available to Australian property investors since the 1920’s (approx).

Will future governments remove the ability to gear or modify – who is to say yes or no but over the long haul property continued to grow in value during that period in our histroy.

Derek
[email protected]

Property Investment Support Available. Ongoing and never stopping. PM welcome.

John,

As per the info I sent you, the street address of the property you are interested in is approx 1.8km from the nearest train station. Which IMO is not that far to walk, however it depends on the individual. It is a well located spot, perhaps not as good as some, but certainly worthwhile if you don’t mind walking <2km to get to the train, and nearby shops!!

Jo

Thanks Derek,
Everything you wrote made sense and is accurate.

I fully agree that the claim of interest and other costs incurred are legitimate expenses involved with owning a rental property, as it is similar to running a business and that you cannot discriminate against an investment property owner vs a business owner.

But consider this: as a PAYG employee that also operated a business which happen to run at a loss…not too many years ago, it was also legitimate to offset this loss against your income ( job) and hence get a tax refund.

This was abolished by the ATO so that the loss incurred in the business was then quarantined within the business and could only be offset against future profits or against the capital gain if/when you sold the business, assumeing it sold for a profit.

There is no reason to suggest that this cannot be applied to negatively geared property investment.

Sure, you maintain the right to quantify the loss, but only for the purposes of carrying it forward to offset against future profit from the property either by way of positive rent return or when you sell for a capital profit.

It is the PAYG taxpayer who also owns a business who is now being discriminated against, vs the same person who instead buys investment property.

Negative gearing was abolished in the USA, what was the effect ? I would assume market forces took over.
Probably the rent return is better over there so the impact was not so great ( ie… property investors deserting the scene in droves like they would in Aus if it was abolished))

It certainly is not impossible to conceive that the tax refund component against income (job) could be abolished…

I say : never say never !!

The query I have for all you died in the wool negative gearers is : would your strategy change if the tax refund component is erased ??

The answer for me is YES…mine would, and I would start to look at alternatives to take the place of the negative properties in my portfolio be it by offsetting this against positive cashflow properties or entities, or something else.
The point is, if it was to happen, have you considered the alternatives ??

As far as “Itll never happen”
NEVER SAY NEVER !!

KP

KP Kp, its Brizzy, if you know where to look, know what to buy, and know what to do with it to make it hit the 7.5% gross in my books.

Im a buyers agent so be warned, nothing worthwhile is free so PM me if you want to talk.

DD

Don’t sweat the small stuff,and it’s all small stuff!!