All Topics / Help Needed! / Funding for deposits: neg gearing vs pos cash flow

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  • Profile photo of DannyCDannyC
    Member
    @dannyc
    Join Date: 2006
    Post Count: 1
    May 27, 2006 - 5:52 am

    Having read the book and been excited, I am still confused on where the money is coming from for deposits.

    In a negative gearing/capital gain case, I understand the theory. I have $10,000 and use it to buy a $100,000 property at 90% LVR. The property grows in value 10%, and I use that equity to buy my next property. On average growth, this will take two years max.

    As I read the book (0 to 130), it claims that positive cash flow is the important factor, not capital gain. So I have a $50 cash flow per week on a property, but it will take me 200 weeks (4 years) to accrue the $10,000 for deposit for my second property.

    Am I missing something? How are people paying the deposits when buying tens or hundreds of properties in a few years?

    Danny [confused2]

    Profile photo of soloinvestorsoloinvestor
    Participant
    @soloinvestor
    Join Date: 2006
    Post Count: 39
    May 27, 2006 - 7:41 am

    You still need to have some decent capital growth or be able to fund new deposits from your salary or elsewhere. (my 4 rental properties were positively geared from day 1 and have all had excellent capital growth). I had enough equity to borrow 100% on new ones, but I have had to beg, borrow and …… whatever I could to scrape up deposits at times when lenders would only lend 70 – 80% on regional/deemed commercial investments (residential flats). In the long run (which has only been 5 years) they have all experienced fantastic capital growth, but I still find myself having to manipulate the system all the time to get finance…..

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213
    May 27, 2006 - 7:44 am

    Steve’s book talks about cashflow, but he also got some pretty quick capital gains too. I would not buy any property without CG potential – there’d be no point.

    So you have to rely on capital gains, plus savings for deposits.

    Terryw
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