Negative gearing investing.

I am not a fan of negative gearing and im sure you will get more posts from others saying the same. The advisor would get a cut from the builder for the property he is selling you.

I buy properties below market value, renovate them, pull out equity and then rent them for neutral cashflow and move on to the next.

FF30,

The entire basis of this plan that has been put together for you is continued growth in real estate prices. If you don't get growth in the 1st IP then the 2nd is delayed isn't it ? Your aim is to pay off your mortgage and create a further income of $50,000 per annum. If you told the property investment advisor of these goals & you wish to pay off the home mortgage of $368K and have a family planned…..how is an investment that is costing you between $100-$150 per week in addition to what you currently outlay going to achieve these goals ? At the end of the day a loss is a loss no matter how you try and gloss it up and unless your on the top marginal tax rate…negative gearing has lost it's glamour over the years anyway.

I hazard a guess the only person's goals being achieved in this case is the "advisors" own financial goals of getting another sale. Neutral or positive cashflow is what you need.

Hi FF,

It would appear as if your aim is not consistent with the proposal put on the table.

Bottom line is if you want to pay off your home sooner and replace your wife's income then you will need to look at other investment strategies.

As others have said negative gearing relies on the property increasing in value. I would hasten to add the $100-$150/week shiortfall is based on taodays interest rates – any increases to these and your shortfall will increase by a similar margin too.

I might add the 4 yrs between purchases and reduction of costs is something no-one can predict.

Hi FF430

Why not grab a copy of the Australian Property Investor magazine and study the rear pages (statistics).  Look for suburbs that have good historical capital growth (at least 8% listed in the 10 year annual capital growth column), above 6% rental yield, and below 3% vacancy rate.  Better still if there is new infrastructure coming to the suburb that will make it more desirable to live in.  Things like new roads, rail or shopping centres.  But honestly, you want the suburb to be doing well now, not based on promises that might fall through.  If there is a huge gap in price between unrenovated and renovated places, fantastic.  You can do a very serious overhaul of a one bedder unit for under $20k, and for this you'd get new kitchen, appliances, new bathroom, new split system, new floor and wall tiles, new carpet, some new doors and handles, new paint, new security screen doors….  So say unrenovated units are going for $200k and renovated units for $60k, there is a good opportunity there.  You could reno yourself (or pay tradies to do the various components… you just direct traffic so to speak).

Get to know expected rental yields for the suburb by watching http://www.realestate.com.au/rent and also speak to a few local agents.  Then you will understand say how much per week you'll get for a 3br house that is unrenovated, versus renovated.

Remembering that there are buying and selling costs associated with property transactions, you'd want to be careful of a buy, reno and sell strategy.  The margins might be a bit skinny.  However a strategy such as the one below might suit you;

1. Buy # 1
2. Renovate
3. Contact mortgage broker and arrange revaluation so you can find out how much equity you've created – use this equity for deposit on next purchase
4. Do a depreciation schedule (google this) so you can get tax benefits for all the new stuff you've just put into the property
5. Put a tenant in for higher rent than you would have got if you did not renovate
6. Buy IP # 2

…. and repeat