Greetings,
I am reading Steve’s book currently (from 0 to 230+ properties in 7 years) – I’m so impressed by Steve’s radical thought and really grateful to read some testimony from all the mentors. I just started investing in property back last year – and honestly before I read Steve’s book, my mindset of investing a property is to gain a negative gearing so it can help to deduct my tax (this actually an advice I got from my friend as he is a professional accountant).
After reading ¾ of Steve’s book – I already found my weakness and lack of knowledge and really willing to learn from everyone in the forum. Please give me some advice.
I’m a 27 years from Sydney – currently working as a Business analyst in a mining firm. I currently own an investment property in Perth which I purchased last year for $250k (4 bedroom house – 10 years old); I’m blessed as I found that price was really under the market value. Thanks to my colleague advice, I did refinance the mortgage 3 months ago (the market value now is $360k) and I have used $50k as a deposit for an off the plan unit in Sydney (value $490k and to be completed by May 2008). Although I’ve been told by my friend and the property agent that this off the plan unit has increased its value by at least 30-40k, but surely after I read Steve’s book – I feel that I have made a big mistake as my Perth property and my next one in Sydney will only generate a negative gearing. My Perth rent is $300/week.
Honestly when I read the first 3 pages of Steve's book (bad advice in fish n chips shop), that's me!! That's really my situation and I believe many of us will still hear this kinda advice from a passive investor/financial advisor that never invest his own money.
Can someone please advice me what step should I take – to avoid a bad cash flow or hurt me furthermore.Why is that a mistake? If your property in Sydney has increase in value by $40,000 and your Perth one by $110,000 (In a year too!), then this is better than buying inferior cashflow positive property and making $50 per month.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
be happy dude, Ive worked my guts out doing renos over the same period and made a bit more than that. wanna swap?
Just go and read a couple of books which go down the negative gearing route rather than positive gearing route to even things up and then make up your mind. Jan Somers is good has written some good ones. Whilst you are getting such good growth and if you have a high tax bill I have to agree that you don't have much to be too unhappy about.
I have to agree with the other guys,
a cap gain like you've had without doing much work is nothing to sneeze at.
Of course; it would e better if you had a pos cashflow or at least neutral or very small neg cashflow to put the icing on the cake.
As the two properties are so new, have you had a Depreciation Schedule prepared for each one? This costs about $500 per property, is tax deductible and will pay for themselves in the first tax return.
The "on-paper" deductions from the depreciation can make a huge dufference to your cashflow.
If you haven't had them done, do it immediately for the last financial year's tax return. You will need to contact a Quantity Surveyor firm/s near where the properties are to get them done.You've done well and unless your hurting bad financially be happy about it and don't sell. Everyones circumstances are different. Don't put yourself in a box, be open-minded and read plenty of other books also.
Hi Mate, welcome to the forum,
Don't be disappionted in your investments they have performed well for you by the looks of it, Atleast now you are in the market and your portfoilo is exposed to some capital growth potential.
I think the best thing to do from here is to keep increasing your rent on your perth property trying to get a better than market rental return, when you settle on the off the plan assess whether it would be best to take your profit by selling or hold onto to it longer.
work on your loan structure a bit, If your loans are P/I consider putting them on Interest only with an offset account,
keep reading as many books as you can and learn as much as you can
Steves books are good though I recommend reading the Rich dad Poor dad series
L.A Aussie wrote:As the two properties are so new, have you had a Depreciation Schedule prepared for each one? This costs about $500 per property, is tax deductible and will pay for themselves in the first tax return.
The "on-paper" deductions from the depreciation can make a huge dufference to your cashflow.
If you haven't had them done, do it immediately for the last financial year's tax return. You will need to contact a Quantity Surveyor firm/s near where the properties are to get them done.L.A. Aussie – Do you think a Depreciation schedule be worth doing for a property that was built approx 24 years ago?
Thanks
Boshy wrote:L.A. Aussie – Do you think a Depreciation schedule be worth doing for a property that was built approx 24 years ago?
Thanks
yes the depreciation schedule will run over 40 years and will also iclude things like minor renovations, Your tax accountant should also be able to back date the amount you claim to when you first purchased the property.
If the property was built after 1987 you can claim 100% of the building cost at 2.5% for 40 years. There are different "depreciable lives" for the fixtures and fittings.
Thank you so much all for the advice.
I will hold on to my property and read more books (related to negative gearing).
I got my depreciation schedule and will use it for my 2007 tax return.I guess -ve gearing is the savior of most new investors, tax breaks are great…
I am so sick of people saying this and that about -ve gearing….my first IP has now made me an additional 120K in equity and has cost about 23K of my own money over 3 years…you do the maths…
I went to an interesting talk by Brad Sugars , whose strategy was to buy a few low growth, positive cash flow properties and then use the income on these to fund the loss on a negativly geared, high growth property. Set the whole thing up through a trust structure to be self supporting, then go and start again.
Personally, I have a mixture of both positive and negative cashflow properties, and it has worked for me, but each to their own.
Thanks LA Aussie – will have to follow this depreciation schedule thing up. Did some searching and as a novice investor it is an interesting area.
Definitely worth thinking about Attrill – thanks for the info!
Attrill – what does Brad recommend setting the whole thing up in a trust structure?
Mainly for asset protection. It depends how much you are worth and whether you are in an occupation where you have a high risk of being sued for your personal assets. It's a huge subject, but if you buy the Australian Property Investor magazine, there is a section at the back where all sorts of books on the subject are available.
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