Create negative geared IP into a Positive geared I

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Domo
Member
@domo
Join Date: 2004
Post Count: 76
September 28, 2004 - 11:45 pm
There is allot of talk on the forum regarding choosing an IP which has positive cash flow plus capital growth.
I am thinking of selecting an IP in a suburb that is expected to have continual capital growth & increase the deposit until it becomes positively geared & then claim any depreciation.
I would fund the deposit for IP no 2 with the equity from IP no 1 .
To me it looks like the outcome would be 2 positively geared IP’s with the equity spread over 2 IP’s instead of 1.
Does anyone have any thoughts on this strategy ? [hmm]
alwayscurious
Participant
@alwayscurious
Join Date: 2004
Post Count: 80
September 29, 2004 - 1:34 am
It seems like a good tactic.
Do you have the cash to do the deposit? and the purchase costs?
If you have to borrow the entire amount like I did, *use equity* then you are effectively borrowing 100% and more than likely it could be neg. geared.
CHeers
alwayscurious
Mortgage Hunter
Participant
@mortgage-hunter
Join Date: 2003
Post Count: 3,781
September 29, 2004 - 2:12 am
What is the point?
You are simply transferring debt to make it seem pos cashflow.
If you left the equity where it was and neg geared the second property then what is the difference? Your overall position hasn’t changed – has it?
Remember that any property can be pos cashflow if you have a large enough deposit.
Cheers,
Simon Macks
Mortgage Broker
http://www.mortgagehunter.com.au
0425 228 985
NODOC Loan – 65% Loan – No questions asked! 6.85% Rate!!
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Domo
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@domo
Join Date: 2004
Post Count: 76
September 29, 2004 - 2:35 am
MortgageHunter
If IP no 1 has no debt & the equity is used for a deposit isn’t it the same as using cash for the deposit ??[blink]
kay henry
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@kay-henry
Join Date: 2003
Post Count: 2,737
September 29, 2004 - 2:59 am
Domo,
No. If you have equity of 100k, and you use 20k of that as deposit… or you leave the 100k equity, and ADD 20k cash deposit- then you’re 20k ahead. It’s a moot point though- because we all use equity as deposits generally. Hence the “no money down” thing (myth). Because it IS our money- it was equity- now it’s transformed to debt.
I think what Simon was saying is that you can put in a 100k deposit, and then say “wow, I’m a chieving a 1000% CoCR… but really, a lot of people now just look at rental income as return on price. We can use a $1000 deposit on an IP, or a 40% deposit. Best to calculate return (positive gearing) on purchase price, so you get a more realistic estimate. A 50k house with rental of 100k achieves around 10% return. But if you have an 40k deposit… then you say it is positively geared at 200% return? hehe. hmmm.
kay henry