Is my thinking correct that if one is out of pocket by for instance $1000 a month on an investment property in terms of mortgage repayments after rent income, then they are essentially unrealistically expecting the property to make a capital gain of at least $12,000 per annum over the long term in order to make a profit? In other words, does it normally not make sense to save up more of a deposit to so mortgage repayments are smaller, with the view that the property is only an investment?
Yep – if a property is negatively geared, the owner is speculating that the long term capital growth from the property will outweigh the costs.
However, with negatively geared properties (and coupled with depreciation and other running costs) there's generally a tax return at EOFY that reduces the out of pocket costs (that's assuming that whoever your talking about isn't already incorporating these into their ongoing holding costs).
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thank you very much for taking the time to reply. I presently reside overseas in Japan where I have been looking at the property market in Brisbane with interest, with the intention of perhaps buying another investment property. However, with the recent weakening of the yen and fear of taking on more debt despite being offered pre-approval on another loan, I am quite cautious about taking the next step. In my case, living overseas has made me a non-resident for taxation purposes too in the eyes of the ATO. This also affects my PPOR since the announcement in the budget of 2012.
Thank you again for confirming my assumption that the basic mathematics holds true in having to pay $1000 a month on an investment property after rental income in mortgage repayments essentially and unrealistically means the property would need to make a capital gain of at least $12,000 per annum over the long term in order to make a profit. I guess though that this does not take into account the 'forced' savings mechanism.
Yes, your point about reducing out of pocket expenses holds true, depending on the individual's circumstances.
Again, thank you. Much appreciated.
You'll also have to add rates etc. And your $12,000 pa increase in equity is also taxed at the end (it's not clear profit). So you'll need to gain more than that to break even.
Hi Guys ,why buy negative gear when there is lot of positive properties around .
APWPG wrote:Hi Guys ,why buy negative gear when there is lot of positive properties around .Future capital growth prospects, ability to add value, development or sub-divide potential….there's lots of reasons.
Not saying one strategy is better than the other – but just because a property is negatively geared doesn't make it a bad investment.
Same goes for positive cashflow properties. Just because they might be landing you a few extra dollars in your pocket each week, doesn't mean it's a good purchase.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
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