It seems that generaly speaking people go for negative gearing or positive cash flow. Is it possible to go for both and be worth while.For example if you had a negative geared property that gave you a 5 grand tax return(that when put of the loan it covered the total loan costs) and hopefully gives a capital growth down the road.
And as well as that you have a positive cash flow property that raises your tax by 5 grand but gives you a weekly income on top of that.So the cenario above gives you a weekly income plus a property aiming at capital gain that gives no weekly financial strain. And you pay the same tax as you would with no properties. Although the figures are made up does it make sense or is it better to stick to one way or the other.Hello,
I don’t think it is possible.
If you had a $5,000 tax return due to a loss, your loss would be in the order of $10,752 to $30,303.
The tax refund reduces the loss. But the end result is you are still out of pocket.
DIY Investing
Discounted Financial Products
http://www.diyinvesting.com.auTrue but a lot of that loss is depreciation and capital loss not actual cash, out of pocket loss.Still im not sure if it is viable.
Originally posted by devo76:It seems that generaly speaking people go for negative gearing or positive cash flow. Is it possible to go for both and be worth while.For example if you had a negative geared property that gave you a 5 grand tax return(that when put of the loan it covered the total loan costs) and hopefully gives a capital growth down the road.
And as well as that you have a positive cash flow property that raises your tax by 5 grand but gives you a weekly income on top of that.So the cenario above gives you a weekly income plus a property aiming at capital gain that gives no weekly financial strain. And you pay the same tax as you would with no properties. Although the figures are made up does it make sense or is it better to stick to one way or the other.What you are talking about in scenario 1 is a POSITIVE CASHFLOW property.
This is a property that is NEG GEARED, and shows an on-paper loss, but after applying the tax return, the cashflow then becomes POSITIVE. If you also re-invest the tax return back in to the property loan (as you should) then you are even more in front.
This is different to a POSITIVELY GEARED property which is one where the rent income is more than the total holding costs of the property including the loan.
Your week to week tax witholding is the same throughout the year – same as if you had no properties, but the on-paper deductions are applied to your taxable income and a new taxable income is calculated.
You can also arrange for the ATO to reimburse this tax return to you on a weekly basis so you don’t have to wait until the end of the year to receive your tax back. This helps with the cashflow, but there is a temptation for many to simply spend the weekly tax saving. I wait until the year’s end and reinvest the tax return. I treat it as money I wouldn’t have had.
It is also possible to have a positive cashflow property that experiences good cap growth – a double win. Of course, the cap growth is an unknown quantity until it happens, and I treat it as a bonus. My first priority is to buy only pos cashflow properties, so the ‘numbers’ on the property are crucial.
All of my properties are pos cashflowed (not pos geared). They show a loss on paper, but after the tax return arrives, the figures are then positive. This is the only type of property I buy. The good news is that purchased this way, and with reinvesting of the tax return, as well as active debt reduction, the property will become positively geared after a few years.
For a great explanantion of this great strategy, read all the Margaret Lomas books.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
I was just wondering the same thing in my own circumstances and posted a similar question. My 2 properties are negative geared and should be positive cashflow in about a year. I have previously been advised by bank and financial advisor to go for positive properties to offset negative cashflow properties. Is that what you were thinking too Devo76? My bank has also said that they don’t take income from tax return into consideration so I am wondering if I should invest in a positive geared property opposed to positive cashflow property so I can buy more properties as I’ve already got plenty of equity.
Yeah thats my point. If a property i have is costing me around $100 a week ( ONce all costs and rental return are considered).Which im happy with because i have the property for capital gain reasons not pos cash flow. Would then buying a positive cash flow property that gives me $100 a week free and clear after all costs considered make sense. My tax should be close to the same and one property looks after the other.The above situation would only make sense if the negative geared property is expected to see good gains in the future otherwise you may as well buy two pos cash flow propereties.I see a lot of properties that will show good gain in the future but the weekly return is a bit shy to afford so maybe a pos cash flow property might pay for the short fall.[confused2]
Yer, it makes sense to me. One of the reasons that I’m a bit reserved to buy positive cash flow is because I want to eventually develop a block that I own already so I really need growth assets to raise some more funds. So far I haven’t found any properties that show good signs of growth and positive cash flow. Especially living in Perth and it’s too hard to add value to a place in another state. If your neg geared property is going up in value by $50,000/year and costing you $10,000/year you are effectively earning $40,000/year. The growth is also compounding.
I am pretty sure I have read a forum thread related to this previously. It went along the lines of this arrangement being called a “pillar and roof” (or similar) where the +ve cashflow properties are the pillars that hold up the -ve cashflow “roof”. Once that is achieved (ie 4 +ve plus 1 -ve), the buyer goes on to reproduce the “building” I think the poster was one of the forums “big” guys so perhaps they would care to comment. I am sorry I cant recal the name.
Good luck
Tammy
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