G’day all,
Today i had an interesting discussion with my mum where we were talking about real estate and investing. As i’ve read a few books here and there and am currently halfway into Steve McKnights first book i stated that the way to go was positive cashflow as you can start making money from day one. It was all hucky dory for a few mintues until she went on to say that this wasn’t possible!!! She went on to say; sure for the first few years you will make money, and then when your principal and interest loan starts to drop off you will have to pay more to the tax man and the investment property will turn negatively geared!!! ( sorry for the crap explaination but at about this time i got completely lost and started to wonder were she pulled all this from [wacko] ) Any way i was just wondering if anyone could clarify how the life of your loan works as time progress as i am sure that positive cashflow properties stay positive!!!Cheers
DamienDamien,
The simple truth is that you only pay tax on your income, and the max marginal rate of tax is 48%, so even without using any other structure (ie. investing as an individual) you will never be taxed more than 48% of your income (plus medicare levy = 49.5%).
The reason I say this is because (from what I understand of what you’ve said) your mum seems to believe that as your income increases over the yrs (as the loan is paid off), so your tax will – and it will eventually overtake your income. This is physically impossible.
On the other hand, if you are relying on depreciation to make the investment CF+, then eventually that will run out. You just need to do the sums for the individual deal.
My advice (and you will see the same advice from many on this forum) is to just go with your beliefs and try to ignore the doubters out there. As you will read if and when you go on to Steve’s second book (1,000,000 in Property in One Year), his students (the Mappers) had to overcome a lot of doubt from their friends and family. But once they had proved it was possible, people were bashing down their doors to get in on a good thing!
Unfortunately, human nature is to shy away from the unknown and to stay in our comfort zones. To steal the signature of one of the members (sorry I can’t remember who it is – but I like the expression!) “by getting out of our comfort zones we often find that we get more comfortable”! Apologies for the mis-quote, but you get the drift!
So I say – go for it! Your mum will stop doubting when you start bringing in the cash!
All the best!
Adam
Don’t let life get in the way of living.
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