Either I sell or I find a way to make money out of this thing…

Hi Nick

One way to turn your property from negative to positive cash flow is to use what we call our negative2positive process.  In short it involves selling your property with vendor finance.  Using this technique you sell the property for a premium price and generate excellent monthly positive cash flow, while the new buyers are paying it off.

All strategies have their pluses and minuses.  With vendor finance you do lock-in, i.e. fix, your capital gain and generate positive cash flow but ultimately you have disposed of the asset.  The way we overcome this minus, is to buy another one and do it again.

More information on the negative2positive idea is available at  http://www.negative2positive.com.au

Cheers,  Paul

are you on a Principal and Interest loan or interest only?

Hi Jac,

At 7% interest only the annual loss is around $9000 – $9500 depending upon costs for property management and rates. I did allow $2000 for rates and 10% of gross rent for property management costs.

To Nick,

If you are a wage earner you can cushion the shortfall through the use of depreciation reports (if relevant) and/or PAYG Income Tax Variation. If you are on top marginal rate you can cushion the shortfall to by around $4500/annum. The amount of tax saved will diminish as your taxable income reduces to such an extent that it you are in the $6K – $37K taxable income bracket your tax savings reduce to $1500.

Either way it is possible to use a tax variation so that any tax saved is returned to you in your fortnightly/monthly pay period rather than at the end of the financial year.

Hi Jac,

100% rented at $240/week = $12480

Less
Notional 10% property management costs = $1248
Notional rates allowance                                 = $2000
Notional insurance allowance                         = $1000
Interest bill @7%                                                = $16800
Notional Contingencies Allowance                = $1000

Shortfall                                                                = – $9568

Nick's $10K shortfall isn't far off the mark. Gross rent return currently stands at 5.2%

Further to what Terry mentioned, "QS" means Quantity Surveyor.  This is the individual that will complete the depreciation report.  In some cases you can do it over the phone or online.  Google "Depreciation Schedule" and ring a few companies, explain the type of property, the age of the building itself, the age of the stuff in it (eg carpets, oven etc etc) its age, ask them to tell you if it is worthwhile doing the schedule or not.

Hi Nick

Some ideas to improve cashflow if you decide to keep it.

 – Get the depreciation schedule done
 – Set the loan up as interest only
 – Look at refinancing to a more competitive loan (assess the costs involved before doing so)
 – Are you getting market rent? Is their anything that you can do cosmetically to approve the yield? Have you considered allowing pets and increasing the rent accordingly?
 
Are there any factors within the area that would see it achieve growth in the long-term?

Cheers

Jamie

If it turns out it is worthwhile to get a depreciation schedule done, you'd have to hand the completed schedule to your accountant for inclusion in your tax return.  I have a feeling you can claim a year or two back on this as well, but don't quote me on that.

Thanks for the clarification Terry!

I own property in Hervey bay, Not much happening in the Fraser coast is there ?  That's why I recently left the area and moved to emerald.

I would not expect to see much growth in property prices around Maryborough for a fair while.