Hi there,
I am looking into purchasing our first Investment Property and have been looking at both negative gearing and positive cash flow. I am keen to go with negative gearing instead of cash flow positive due to high incomes earned by both myself and my partner.
I have started to read your book and am a little confused why you would suggest buying cash flow positive homes when this always seems to mean buying older homes in regional areas as I am finding that this seems to be the case with cash flow positive houses. Which then would mean more maintenance issues. Please correct me if I am wrong but wont the money earned in rent then have to go towards maintenance and repairs.
I have also been reading articles about the NRAS scheme, which promises cash flow positive investments, can you confirm if this is a good way to go, or are you just buying into trouble.
Thanks for any input
Hi Wattoette
Due Diligence will mitigate your risk!
Get a qualified building / pest inspector to access the quality of the property to make sure it is not falling apart. The report will determine if there are any major issues with the property and if there are any structural damage (e.g. termites etc).
PCF mostly can be found in regional areas because they are relatively cheap. If you do your due diligence it certainly help you make inform decision about what you are purchasing.
Also, if you buying from regional area, get 3 different local property managers and have them visit the property and see if they find the property will required constant maintenance since they deal with this type of issue 24/7.
Don't ask the agent since he is working for the vendor and commission…so you won't get much help.
Good luck
Cheers Leo
Wattoette wrote:Hi there,I am looking into purchasing our first Investment Property and have been looking at both negative gearing and positive cash flow. I am keen to go with negative gearing instead of cash flow positive due to high incomes earned by both myself and my partner.
I have started to read your book and am a little confused why you would suggest buying cash flow positive homes when this always seems to mean buying older homes in regional areas as I am finding that this seems to be the case with cash flow positive houses. Which then would mean more maintenance issues. Please correct me if I am wrong but wont the money earned in rent then have to go towards maintenance and repairs.
I have also been reading articles about the NRAS scheme, which promises cash flow positive investments, can you confirm if this is a good way to go, or are you just buying into trouble.
Thanks for any input
You can buy CF+ through NRAS but you need to research well as you want to buy in an area that shows good signs of potential growth. hotspotting.com.au have excellent reports on growth areas. I have more info on NRAS on my website that could be worthwhile reading.
Thanks Tony I will look at your site also.
Thanks ipalad for your info
yes I know what you mean about older properties… they can require regular maintenance. However, hopefully in the beginning this property didn't cost too much and therefore you can expect to have to part with some money to keep it functioning ok! If you purchase a property that can potentially return two rental incomes, eg. a home with a granny flat, or unit connected to it or out the back then the possibility of +ve cash flow is much higher.
Regards
Peter S ([email protected])
High Rent Return Properties – http://www.ozpropertyinvest.com/hy/2022.htmlDo want to make money out of real estate? You also need to consider if one of you lose your job, can you still afford a negitively geared property? Just a thought.
Proptyman, thank you….that is a good idea with the granny flats etc…not something I had thought about.
Kaylah, I am not interested in making money right now out of property as my hubby and I are both earning exceptional money and anymore income would mostly all go to the Tax man which is not what I want.
I am interested in property to set us up in 10 – 15 years time in retirement. So I am looking at long term not short term, which is why we will buy new properties to take advantage of all the tax deductions and depreciation but I know eventually they will (or should) become cash flow positive over time. There is also little or no maintenance so less work involved in upkeeping these properties.
Neither of us will lose our jobs where we are, if we did there is still heaps to choose from as they are in desperate need of workers so for the next 10 years this is not really a worry for us. I also have income protection insurance that will help out if that was ever the case for the short term.
Kaylah wrote:Do want to make money out of real estate? You also need to consider if one of you lose your job, can you still afford a negitively geared property? Just a thought.That is WHY a knowledgeable investor should have an exit strategy (i.e. Insurance against loss of income). If such event occurs, it will cover you while you are looking for work, temporarily.
Hey Watt
If your after Negative properties, then I would recommend "property rich" by Melissa Opie and Stephen Zamykal, and also Michael Yardneys books are also good for NG inclined investors ( although sometimes he yaps on a bit)
Steve's books are good but focus more on PCF properties.
Just a thought
http://www.youtube.com/watch?v=V1bkdgi04ig&feature=related
These apartments are in Mackay, I am investing in a 2 bedroom apartment. The rental for the apartment is $750 -$850 per week. I have chosen Mackay as there is strong rental demand pushing up rental prices. See the link if anyone interested.
You'll have to excuse me for butting in as a newbie and still saving for my first property but wasn't the whole point of McKnight's book regarding negative gearing that you will never achieve a good income from it because you have to make a loss (large) to gain a tax advantage (small) so therefore there is an absolute limit on the amount of properties you can own before you have to make personal financial cuts regardless of how much money you and your partner earn?? If you earn that much buy silver and dump the remainder into term deposits at 6+% per annum. The net present value and opportunity cost of your on-going loss making strategy would outweigh any future accrued benefit although obviously I don't have any figures so take that as you may. Any loss to save on your tax bracket woudl have to be substantial and a loss is a loss (ie all negative).
If you want to gain financial freedom and why wait 10-15 years??!!?? (ie no job/retire) then it is a loss making strategy.
Personally I believe it to be a manipulative government rort which distorts the market, why can't I negatively gear my small business for example and reduce my personal income by the loss I make each year as an ABN holder? It is also the reason as McKnight says in his book that of all the so called investors less than (10%?? don't have 0-130 at hand) own more than 3 properties.
Jonesi274 wrote:You'll have to excuse me for butting in as a newbie and still saving for my first property but wasn't the whole point of McKnight's book regarding negative gearing that you will never achieve a good income from it because you have to make a loss (large) to gain a tax advantage (small) so therefore there is an absolute limit on the amount of properties you can own before you have to make personal financial cuts regardless of how much money you and your partner earn?? If you earn that much buy silver and dump the remainder into term deposits at 6+% per annum. The net present value and opportunity cost of your on-going loss making strategy would outweigh any future accrued benefit although obviously I don't have any figures so take that as you may. Any loss to save on your tax bracket woudl have to be substantial and a loss is a loss (ie all negative).If you want to gain financial freedom and why wait 10-15 years??!!?? (ie no job/retire) then it is a loss making strategy.
Personally I believe it to be a manipulative government rort which distorts the market, why can't I negatively gear my small business for example and reduce my personal income by the loss I make each year as an ABN holder? It is also the reason as McKnight says in his book that of all the so called investors less than (10%?? don't have 0-130 at hand) own more than 3 properties.
I agree. Even though you will get a better tax return, it still is unlikely to cover expenses. So if you are only banking on CG then think, if property doubles in price approximately every 10 yrs then if interest rates are around 10% then your profit is wiped out in interest. Plus as a bonus you have put yourself out of pocket each week covering expenses.
I still recommend looking for properties that MAKE money. It does take time but if you know how to look you'll find them.
Hi Wattoette
Michael Yardneys book 'How to build a multi-million dollar property portfolio in your spare time' is the book you should read…
His strategy is to buy property located close to the major CBD's that is negative geared but has good capital growth potential.
If possible, do a quick comestic remo – Eg. Paint and carpets
Give the property two to three years, the increased rental return will have the property close to nuetral geared, and the equity that is now available from the capital growth can be withdrawn and used for the next property purchase…
Matt
Jonesi274
some investors choose to take out a line of credit to pay for the shortfall that they get from having NG properties, there for they are not restricted as to how many properties they can buy.. as long as properties go up. ( which as property investors we need to believe hehehe)
Jonesi274
putting money into term deposits requires you to pay even more tax as you then have to pay tax on the earnings of the interest etc.
My thoughts with negative gearing is to pay extra off the principal while we we can afford to as well as accept the tiny cost that they incur to begin with, but it wont take long then to gain capital growth.
I am also looking at the option of buying a cash flow positive property to neutralise the negative…So therefore possibly buy 1 + to each – property…..
I am still unsure of which way I want to go which is why I am throwing questions out there and reading as much material as I possibly can. Steves way seems like a lot of work to me and while I love my job and enjoy earning my wage I may as well look at taking advantage of our tax system…
I am not real keen on buying properties that are older as my feeling is that they would be harder to rent than newer properties, and I dont want the head ache of having to replace the hot water system 2 days after I bought the property or the stove has gone on the blink etc, etc.
Thanks for your thoughts though as I do appreciate all feedback, and like I said I am still throwing around which way I want to go with it so all thoughts are welcome.
Thanks Matt, I will look for his book in the book store on the weekend.
Kaylah, I am still in 2 minds to believe that property doubles in value every 7 – 10 years……Yes it goes up, but I would be very surprised to see them double, Melbourne prices were around $300 – 400K 10 years ago, and they are still around that price so I have yet to have it proven that they double every 7 – 10 years. If that was also the case, where I live now median house prices are $750K for a 3BR basic house, are you telling me they will be $1.4M in 7 – 10 years……I certainly do not think so as the town could not sustain those prices. Can you prove to me in any way that they double in that time frame ???
Wattoette,
It is a liitle bit hard to say that "melbourne" prices were around $300 -400k ten years ago and still are now. What do you define as Melbourne? Richmond, Camberwell, Kew, Footsgray, Sunshine, Altona, Knoxfield, Boronia Ferntree Gully, Frankston, Seaford, Mornington? It is a little bit hard to compare inner city to northern suburbs to Sth East suburbs to bayside. I would be very interested to see any suburbs in Melb that were $3-400k ten years ago and are still the same today. Especially with the exceptional growth Melbourne has seen in the last 12-24 months
The rule that houses double every 7-10 years is not something that is written in stone, but history tell us that it happens more often that not. Some examples of this areSuburb median 2004 median 2010
Richmond $465k $880k
Boronia $258k $443k
Frankston $250k $410k
Altona $330k $616k
Ringwood $297k $558kThese suburbs are a broad range across melb CBD and you can see that in only 6 years most of them almost doubled, if not doubled. I believe that at the beginning of 2010 the median house price in melb exceeded that of Sydney at around $560k due to their exceptional growth. It is almost inconcievable to think that in another 10 years house prices may double, pushing the median in Melb or Syd to over $1M, but if trends continue the way they have this is what we will be facing. Who would have believed 10 years ago that the median house price in most capital cities would be around 500K or half a million dollars!!
Choosing the right suburb can see you double your money in less than 10 years. This is what makes a top IP stand out above the good IP's. People in Perth saw their property prices almost triple within 2-3 years from 2003 to 2006. Obviously the Perth market has been flat for quite some time now as the market has to correct itself but Im sure they will begin to see prices start to move in the next 12-24 months.
Hope this info has helped answer some of your questions
Corie
http://www.news.com.au/money/property/top-traps-for-first-time-property-investors/story-e6frfmd0-1225935970519 Here is a great link that is worth reading. Hope this helps.
Thanks for the site Kaylah, can I ask though….did you read all the comments after this article ??
Corie, as I have read in other articles, here is a snippet of one that i have read ….House prices double every seven to 10 years is a myth – Bisbane house prices did not increase during the period 1993 to 2003
Kaylah, I hope you dont take this atricle as gospel either, as he is just a professor putting his own personal views across….he mentions the Insurer Terri Scheer, but then if you have read all the comments that follow you would have also seen this comment……
I hope the writer does not have any vested interest with Terri Scheer. I had insurance with Terri Scheer for many years and never could receive anything for the damages done to my property by the tenants. What was distrubing was that the real estate agent who manages my properties told me that they could never get anything from any claims made through Terri Scheer
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