Hi All
Merry Christmas to you all.
I am still so confused and hope that you can help me. I have 2 questions.
I think I understand the 11 second rule, negative gearing, positive cash flow and capital gains, but I have read that a propery can have a positive cash flow even though it doesn’t meet the 11 second rule how?
I also read Peter Spann’s book and he states that if you buy a property for say $160,000 then the rent should be $160 per week, is he talking positive or negative cash flow?
Thanks
Martine[blink]
“I will get the hang of property investing if it is the last thing I do”HI Martine,
My understanding of the 11 second rule is pretty basic, however it is true a property may pass and still be negatively geared. All the 11 second rule does is show you a percentage of around 10.4% return.
When taking into account, interest, rates & charges, maintenance etc, a property at times may cost you more than 10.4% annually and therefore making it negatively geared although it did pass the indicative test.
Saying that, your example of $160,000 renting for $160 per result does not pass the 11 second rule test. I believe what that is referring too is more what you would expect to get minimum rental return. That is also around 5% gross return and guaranteed to be negatively geared.
Byronent
Adelaide SAActually, it is NOT guaranteed to be negative geared. You need to be geared in the first place at a level that results in negative returns on a property to have negative gearing.
What I am saying here is that if you paid cash for the property, you would be positively geared assuming your running costs are less than 5% per annum. If you borrowed 80% of the property value to purchase it, you would pretty certainly be negatively geared if the rent return is only 5% gross.
There are a lot of numbers to consider. The simple way to remember it is that if expenses are more than income (regardless of levels of borrowing), then it is negative.
Robert Bou-Hamdan
Mortgage Adviser0414 347 771
[email protected]
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Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdThanks all for your feedback, I guess I still have lots more to learn, but every little step takes me closer to my goal
So thanks again for your help
Martine[cap]Does anyone know the cost for horse adjistment. I have a vacant block available to me that is not zoned residential and cannot have a house on it. If the returns are good I may make an offer on the block.[biggrin]
Scott Bevis
Not much, not warranted buying a block for I have to say.
You usually adjist on the spare land of a block to earn extra revenue.
Byronent
Adelaide SA
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