With it being next to impossible to obtain postive cashflow property, is it worth looking to negative geared property? And if so at what negative percentage?
Hi Herks,
The best answer is really dependent upon your financial situation, the amount which you are prepared (and/or able) to gear and what your goals are.
Cashflow and growth in a simplistic sense are really at opposite ends of the investment scale and there are those who will argue until they are black in the face for both options (and probably others in between too)
If you do choose to negatively gear then try to select a property that will grow in value fairly consistently, such that growth helps ‘compensate’ for the negative cashflow.
Also bear in mind that negative gearing is more suited to higher income earners and without knowing your income, goals etc it is really difficult to comment further.
Nonetheless hope this helps.
Derek
[email protected]
http://www.pis.theinvestorsclub.com.au
0409 882 958
Skype – derekjones2113Negative gearing is you making a loss in the hope that you will make a capital gain later on. Why I say loss is for example say you have to fund a loss of $10,000 a year you will get back approx $4700 on the highest tax bracket. So you lose $5300 to get $4700 as a tax refund. Which was lost in the original $10000 loss. If you want to reduce your income for the medicare levy surcharge threshold, the loss is added back onto your income to calculate the medicare surcharge liability. Same goes for social security income calculations. I discovered the drawbacks when I became a University student and had no income and had a negatively funded investment. Also you need to factor in how you would manage with funding an increase in loss if a rise occurs in interest rates in the future. Depreciation is another aspect you need to consider into your decision.
Hi Herks,
If you’re going to buy a negative geared property I suggest that you make sure you’re going to get capital growth.
I think it would be worth getting the Residex Report on predicted capital growth areas to start you off.
If you pay tax there are lots of deductions you can claim from property investment. I prefer to buy newer properties so that I can claim good depreciation as well.
I also use Interest only loans which will makes it cheaper for me to hold the property (while I wait for the proeprty to rise in value).
Try and get something as close to cashflow neutral as possible. It is not uncommon to get a new or near new property that only costs you $70 per week of your own money to hold (taking tax deductions into account) It does depend on your income and other variables though.
Some of my negative geared properties will become cashflow positive soon because rents are rising. They are quality properties in quality areas and are very easy to maintain. These are just some of the advantages.
Todd Burns
http://www.freepropertyhelp.com.au
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