To all investors, i have done some maths and found that -ve cashflow yield more on cash on cash return in 10 years than +ve cashflow property.
-ve cashflow with $47per week out of pocket and diminishing as years come by to $26 per year in 10 years yield around 600% cash on cash return in (assuming growth at 10% yearly compound) which you can delay your tax paying if you not sell the property.
+ve cashflow with $82 (which have to pay tax as its an income) per week into pocket and increasing to $142 in 10 years yield around 380% cash on cash return (assuming at 4% growth companded)
i know the growth is just an assumption, but you are looking for high growth area if you -ve gearing. and property that have +ve cashflow usually in regional that have lower growth rate.
opinion?
Hi M, yes we all know that a good -ve geared property can beat a typical +ve cf prop in times of good growth, but the whole point is that you can invest in many more cf+ props than you can cf- props. I stopped with cf- props when my taxable income dropped to the 43.5% bracket.
Jim.
opinion?Each strategy has their pros and cons and I will try and be as balanced as possible…
-ve gearing per say is not a good strategy. HOWEVER -ve gearing with positive cashflow is good. see my other posts on this.
-ve gearing, +ve cashflow
PROs
– Good for high income earners
– Saves money AFTER tax
– Choose the right location and you will have high growth
– Always beats +ve geared properties in my analysis, not so much on ROI but on “total cash” on sale.
– Doesn’t require too much time.CONs
– Not good for lower income earners.
– Hinders future borrowings.
– If no rent comes in, this strategy can hurt.+ve gearing
PROs
– Good for everybody
– Nice, yet very little, cashflow every week
– Does not hinder future borrowings.
– Easiest way to get the ball rolling.CONs
– Need a lot of time
– Administrative headache as you need about 20 to 30 properties to make it worthwhile. (Well of course you could pay someone to take care of them, but does this defeat the purpose?)
– Growth is not as good. (However during a boom everything grows.)SUMMARY
Different strategies for different people….
THOUGHTS
– I would be very careful about what I buy at this stage (whether it be -ve or +ve), and I would not buy in *rural* towns unless I knew ABSOLUTLEY for sure what I was doing.
With all property; Location, Location and where it is, is very important, and a lot of +ve proprs simply do not fit the bill anymore!
Pin
yes. that fill in all my doubts, yes again for future borrowing ability, that could hurt, thats why there not many people that have more than 2 investment properties, guess that explains itself.
the headache of management on +cf can be troublesome, need some good PMs
the quite hard part on +cf IP is looking for the property itself i recon, while there is plenty of -ve which have reasonable growth.
Great little summary Pin!
Yes Pinit,
I agree with doogs, a great little summary. Just what we need.Sue [
]“Be careful not to step on the flowers when you’re reaching for the stars”
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