I'm relatively new to the investing game and own an investment property in NZ which is negative geared so that it is currently reducing my weekly tax payments from my salary to 6% (here im Sydney).
I'm looking to purchase another property and have two options
1. another investment property, i'm looking in Lakemba, median price for a 2 bedder is $210k and that area has a very high rental yield around the $280 per week. This is the closest positively geared property/area I can find in Sydney, which would allow me to then duplicate 2 or 3 more times.
2. i current rent a house so my other option is to purchase a more expensive property (circa $1mil) which would would tie me up financially and restrict me from doing anything else, however the capital gains in the long term seem appealing (and the ability to have mine and my flatmates rent go towards my mortgage instead of someone elses).So I have a few questions
– Should I continue to rent and purchase more investment properties?
– What gain is there for me once I have more negatively geared properties once it reduces my tax to 0%? Is this the point where being negatively geared ceases to be profitable?
– How do I grow a property portfolio if properties are negatively geared? I'm then limited by my salary how much I can afford to contibute each week.Any help, general feedback and direction would be great.
Thanksonthelinks wrote:I'm relatively new to the investing game and own an investment property in NZ which is negative geared so that it is currently reducing my weekly tax payments from my salary to 6% (here im Sydney).I'm looking to purchase another property and have two options
1. another investment property, i'm looking in Lakemba, median price for a 2 bedder is $210k and that area has a very high rental yield around the $280 per week. This is the closest positively geared property/area I can find in Sydney, which would allow me to then duplicate 2 or 3 more times.2. i current rent a house so my other option is to purchase a more expensive property (circa $1mil) which would would tie me up financially and restrict me from doing anything else, however the capital gains in the long term seem appealing (and the ability to have mine and my flatmates rent go towards my mortgage instead of someone elses).
So I have a few questions
– Should I continue to rent and purchase more investment properties?If you rent you do not have to pay the maintenance/ repair costs , Council Rates, Building Insurance, and Water Rates except maybe the excess usage part.
If you Buy a $1 million dollar place you have to find the interest payments and possible a small principal payment which would kill cash flow and is not going to be tax deductible in any way.
If you lost your job you could have the owner occupied property sold from under you to cover the mortgage.
onthelinks wrote:– What gain is there for me once I have more negatively geared properties once it reduces my tax to 0%? Is this the point where being negatively geared ceases to be profitable?Yes there is a few points .
$80,001 to $180,000 you get 40c back for every $1 you lose. So you are losing 60c
$34001 to $80,000 you get 30c back for every $1 you lose. So you are losing 70c
$6,000 to 34,000 you get back 15c for every $1 you lose . so you are losing 85c
When you get your assessable income lower than $6000 as a resident tax payer you get Zero back.
If you think 15c back is a good deal then it is the $6000 point other wise it is below 34,001 when tax return is not so good.
The word profitable doesn't relate to the new tax scales as shown above.
The idea with negative gearing is to have a short term loss so that eventually the investment makes a profit.
However depreciation can make the loss sustained merely a paper loss rather than a cash flow loss of money.
Especially if building write off can be utilised but it reduces cost base making CGT higher if sold.onthelinks wrote:– How do I grow a property portfolio if properties are negatively geared? I'm then limited by my salary how much I can afford to contibute each week.Spot on !!
Negative gearing limits you !!
If you have time on your side hopefully the value of the property grows and the amount of rent increases and helps pay off the loan. So if you wait say 5 years hopefully a say $400,000 property would grow to (400,000*(1.07^5) = $560,000
Now the loan might be still $400,000 but the property is $560,000
So 560,000 * 80% LVR = $448,000 so you could draw down on the increased equity to 80% LVR being $48,000 to use as a deposit for the next property. Also if you can pay down the loan you also increase the equity more and be able to borrow more.There is another method not recommended where two properties are used as security and the LVR goes to like 95%
But you risk losing both properties if you get into trouble with paying off loans.
so say / ($400,000) existing mortgage plus $400,000 for new loan / $448,000 + 400,000 (for next property) x 100
So 800,000/848,000 * 100 = 94.3% LVR
Did this one myself over 4 years made $70,000 capital gain. Return really depends on property market conditions !Positive gearing doesn't limit you !
But you can reach a borrowing ceiling when you get to 1 million due to mortgage insurersOther methods available but risk is higher !!.
Active investment
http://en.wikipedia.org/wiki/Property_development
http://en.wikipedia.org/wiki/Subdivision_%28land%29or
http://en.wikipedia.org/wiki/Covered_call
Risk here is share price falls in value however a put option will limit the loss.I am currently going to a Jennie Brown investment seminar that will teach me other methods also.
Sometimes you have to think outside the box.
Hello Duckster !
I hope you're doing great ! I can see you're pretty trained with numbers, which is good !!!
Did you finish Jennie Brown's 7-month mentor program ? Can you tell me a little bit about your experience? Do you recommend it?
Cheers
Alex
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