after buying and reading steve’s original book recently, i was extremely motivated to start on a path to financial independence.
However, one day I came across Yardney’s site (http://www.propertyupdate.com.au) which discussed the down-side of positive investments. In particular, you cannot get capital gains and positive cashflow at the same time, and also that positive cashflow will only get you more spending money. Then reading Steve’s latest book, he said something to the effect of “Positive cashflow properties are made, not found”.
Reflecting on this, I am beginning to think that it would be better in my situation to go the negative cashflow route and invest in SE QLD near the big cities which is booming at the moment. My reasons for this:
– I am 25 and will be working for the forseable future (i.e. willing to sacrifice more time to pay off negative cashflow because…)
– capital gains would make more money than positive cashflow (IF it works out)
– vendor financing, wraps, etc. seem like too much of a risk.
How many of you actually employ creative methods and is it risky?
Is it actually possible to get positive cashflow without doing something creative?
– Ballpark figure of $2000 extra a year on single investment property will give me
extra spending money but how I can grow this into more investment properties?Although I would love financial independence, is it more beneficial to try to make more money via capital growth first, while this property cycle is about to begin?
However, negative gearing will make finances much tighter. Is it worth it?
Do any of you have suggestions and advice? I am hoping not to make a big mistake!
Generally in Australia positive cashflow is difficult. Where you find it you will in most cases not get great growth. However you can buy properties and renovate them improve values. The secret is that you need to research the market that you are wanting to buy in. I over the years have brought properties from Australia, New Zealand and the United States. Once you have researched a market until you understand it you are then in a position to buy.
Nigel Kibel
http://www.propertyknowhow.com.au
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Sit down for an hour or two and write a document detailing what you wish to achieve and then determine a strategy to get there. When you have done this the path will be a LOT clearer for you.
Too many of us think that owning an IP is a good idea so we go and buy one. Then a bit further down the track we think another one would be good and so we buy that too. I was guilty of this in my younger days.
Not a lot of structure and direction in this strategy. My single best piece of advice is to have set goals and a plan. Anything else is just kidding yourself that you are an investor!!
I happily negative gear but many on this forum see that as some sort of sin [blush2] But with my situation, goals and plan it fits perfectly. Doesn’t mean it is right for the next person.
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Thanks for your replies.
I guess the big question I have is how you can achieve financial independence through cf+ properties when the first one you get only gets you approx $2000 a year…
I know some people here have posted that they make in excess of $100K a year. When you are making $50-60/hour, how does it make sense to make an extra $20/week?
I know many of you have been very sucessful at cf+ investing, so i was hoping you could tell me how it all works out…….
thanksPoch Poch,
In 2007, its my opinion that earning $20-30 or even more per week profit (ie cash flow positive) on a property is not as a general rule going to make you independently wealthy.
Long term capital gain is however, whether through value-add or buying in the right areas for long term capital appreciation.
Yes there will be exceptions to the rule but if you seek out individuals who have invested over many years (over many cycles), the strategies which have proven to be successful will be clearly evident.
Woodsman
HI Poch Poch,
All I can say is from your statement are you trying to tell us that a positive geared property doesn’t increase in value and hence has no capital gain value?
If I was earning 2000 extra a year instead of losing 2000 a year on a property I would be using that to take my next step. The funds can be used to either pay down your loan giving you a little more equity, or saving up towards a deposit for your next property.
To me, Negative Gearing only makes sense if the property is going to go up in value by more than the amount of neg gearing over the period that you own it. Many people take on neg gearing in booms with the knowledge they will recoup the money in the cap growth. But you can’t guarantee that will happen.
Many high income earners neg gear simply to get a tax break. This makes no sense – they are paying $1 to lose 50 cents (assuming they are on the highest tax rate). Of course, they are hoping for cap growth as well. But continuing to lose money every week makes you a slave to your investment; you have to keep working to support the investment, and cop a hit to your lifestyle as you have less funds to play with. Doctors and lawyers come to mind; how many of them do you see retiring at 45 or 50? Being a high income earner doesn’t automatically make you financially literate.
Why not invest for cap growth AND cashflow? You can maximise both through very careful selection of the area and the property you buy. Done correctly, you can continue to buy properties every year that cost you no money out of your pocket, and continue to grow in value. Read Margaret Lomas’ books to learn how to achieve this. They are fantastic.
To maximise returns you also re-invest the profits (rent and tax returns) into the property (or into minimising non tax deductible debt like c/cards and PPoR mortgage). This allows you to accelerate your equity faster and invest again sooner.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
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