G'day, first time poster here, please be gentle.
I've been pitched this idea for purchasing government assisted rental properties. They are marketed as negatively geared, yet with positive cashflow. I'm struggling a little with the concept (always thought it was either positively or negatively geared, full stop) and am awaiting further details (calcs and figures etc), but my understanding is that the positive cashflow is due to government assistance and the set rental rates from guaranteed occupancy for 10 years.
Has anyone had any experience with similar concepts and what are the most obvious pitfalls?
i.e. in my, limited at this stage, understanding, if a property is negatively geared, it is COSTING me money, rather than bringing in profit and what I'm banking on is the capital growth, which may or may not live up to what is desired
Highly appreciate any feedback and critique, especially of the constructive kind.
Hi opoberez
Sorry don’t know anything about government assisted rentals, however maybe the property is negatively geared, and once you take into consideration the tax deductions (i.e. Depreciation, management fees, etc) it becomes cashflow positive?
Positive gearing and positive cashflow are different concepts.
The only way that I understand that a property can be cashflow pos & neg geared simultaneously is as noted above – after tax taking into account depreciation allowances.
The pitfalls being that the benefits of accelarated depreciation drop off rapidly with the property becoming negatively geared and that when you come to sell you need to add back the depreciation claimed (as with any other property which attracts depreciation).
Is this the program where the govenment can pay up to $8,000 pa on specific building projects in return for charging lower rents?
I have not looked into it but I thing it might come down to whether the up to $8,000 from the govenment is classes as an income or grant?
One pitfall is the large scale development requirement for the National Rental Affordability Scheme
see
http://www.fahcsia.gov.au/internet/facsinternet.nsf/housing/nras.htm
(there is a number on the web site to call to book ito an information nightThis firm below was advertised in API Magazine MAY 09
http://questus.com.au/
(not an endorsement or advertisement – Just information you may find enlightening)thank you for the input and replies so far.
jjweb and duckster, you are correct, that is the program.
aside from the large scale development issue- I guess I have an emotive connection for this with Public Housing. Not really the same thing, of course, but if there is a limit on how much a person can earn to live in this sort of dwelling, it's automatically cutting out a large demographic.
One of the caveats on the government grants is also that they decrease if the property remains vacant over a certain period of time.
I'm trying to crunch numbers to determine the viability of this over purchasing something more stock standard. Being a first timer, I'm consulting financial advisers and this is what one has suggested and recommended. Since I haven't come across this concept before, I'm still trying to get my head around all the risks and benefits, thus the question if anyone has dealt with it before.
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