Positive Gearers vs Negative Gearers

I have mainly bought 2 bed units. In hindsight houses would have been better.

A 2 bed unit described would be about $250k and rented for $200 per week. In Frankston a 2 bed unit in Sth Frankston is about $200-$220k and rents for about $160 per week.
If you could afford it buy a house as it had a larger land component but will cost more on a monthly basis.

Just look at realestate.com.au and realestateview.com.au The agents are all the same.

I have invested in Mentone and Frankston. Capital gains have been very good. I am not buying now and am consolidating.

But I like Sth Frankston. There is a huge amount of investment planned for frankston eg. Marina, new shopping centres, picture theatres etc.

Prices have already gone up, but I expect more growth as the developments get off the ground.

I think the building of the marina is now at tender stage for builders. I would live in Frankston except that I work in the city.

> if our expensive properties had potential for both
> CG and rental yield that was CF+, well, we’d all be in there doing the CF
> thing.

I think that – from what i can gather in my studies of the RE market – is that the regional areas which traditionally ‘don’t have capital gain’ (yeh right, they so do- ) do get it, but as a catch-up after the cities. That seems reasonable, logical, and predictable. That is how come you have a property bought for 10K in 1991 (the cheap CF+ve house of that time) worth 5 times that in 2004. That’s an actual example of a house in a regional town in NZ where you can still get really good yields today like 15 percent or more.

Is that about the same as Sydney? If you bought for 200K in 1991 it would be worth 1 mill today? Maybe.
>If only our $300k property got $600 a week rent, well, wouldn’t we love
> that?

Do you mean they don’t exist? Or you don’t choose those properties?
Would you choose a property like that if you could find one?

Cause i think you could definitely buy a 300K property with 600 a week rent -. That’s only a ten percent yield. it might be a commercial property though rather than a house

> But *someone* has to buy nice houses and apartments.
yah, of course, the lion’s share of property sales in the market are to owner-occupiers, a fact which many investors in their egotism (bless!) seem to forget.

> To suggest a beautiful
> unit with views, or a lovely landscaped house is a bad investment

It might very well be. I mean today’s beautiful is tomorrow’s dated. Also, as an INVESTOR do you buy the house for top dollar because the landscaping is nice? You sound like an owner-occupier buying on emotion and vibe, which is fine, and obviously I agree that aesthetics are important to tenants too – but now, just thinking about my friends – who painted their house in Auckland before selling it, because fresh exterior paint adds 10-20K to the price. but it didn’t cost them that much to have it done. You dig? Ditto landscaping. i think all that stuff is designed to emotionally appeal to buyers, but investors are supposed to be wise to that kind of stuff.

>(if just messes
> with my psychology, because at the end of the day, being an investor is a
> psychology, and we do what makes us feel comfortable. Otherwise, we’d just
> feel off our heads all the time- completely worried about what we were doing.
> Who wants to have a nervous breakdown about RE?

Nobody, but financial stress is the reason why most people have headaches about RE. They have to work harder in their jobs to pay the shortfall, and if an unexpected expense, death, divorce or whatever happens and they can’t work they are in trouble. but then ask anybody who is making money from their properties – like a cash surplus – how it’s going and they will say ‘fabulous!” I bet!

>We just do whatever feels
> right for us- and that’s such an individual thing.

I have a friend who buys on gut instinct, and sure capital gain hotspots can often be picked just like clever stylists pick fashion trends way before they’re on the high street. That’s about people. what are PEOPLE going to want in the future?

> Sis, I will buy properties that suit my headspace. I’d have no probs with
> buying CF+ properties if I felt they were good buys.

But do you ‘feel’ something is a good buy, if buying for CF, or do you work out the yield?
>But do prefer post-1985
> apartments- I am not a renovator, and wanna set and forget.

I am so not a renovator, at least, i thought I wasn’t. I don’t like it, but I see that it’s a great investment strategy to use with buy and hold. Firstly it eliminates nasty surprises in the future if you deal with every problem on your builder’s report upfront. Secondly it attracts a better tenant if the place looks nice. Even though I really hated the thought of renos and thought I never wanted to get my hands dirty and do one ever – – I also realised that if I did get into a bit, ‘cosmetic makeover,’ – i could get three houses and make ’em goood for the price of one already good one, basically. So i did that. OK, I lifted a roller for one whole day and got paint in my hair before I was over it, and the fumes made me ill. So after the novellty wore off I hired tradesmen and believe me they are not at all expensive in small towns. I know you hear of people doing 2 year reno,s all by themselves, but that’d be the owner occupiers.!!! The savvy investors just make phone calls and everything happens very quickly. So you can get your tenants in.

I forgot to add, my overall portfolio is entirely CF+ve at the moment as i am building up my passive income. My strategy later is to ensure that my overall portfolio remails CF+ve even if I later add some negative geared properties in the mix. though I reckon I have about four years of flattish prices to find a good one. Q’land perhaps! Over time negative geared properties become positive, anyway, yippee! Plus they give you the growth burst to buy more properties. in a boom, that is! but you need your portfolio to be CF+ve overall, if you want to continue to buy properties (my plan) or else you’ll max out, or have to get a second job, etc!

cheers-
Mini

Jesse,
A sinking fund is an amount of money raised by the body corporate designed specifically to undertake capital improvement(s) to the building.

Things like maintenance of common areas (carpets, painting), landscape gardening, structural work on building, external electrical work etc.

It is prudent that most body corporates have an amount in their sinking fund to address these issues as they become due.

AS a property owner, you will pay Body corporate rates, plus an amount for the sinking fund. Please note however, that the sinking fund is not tax deductible. There will also be GST payable on the sinking fund contribution.

James

I have just one [glum] yes one property, neg geared (5.01% yield), bought it just before reading Steve’s book last year. Really nice, good quality house and land in good location in Dubbo.

I have been looking for a CF+ property for months now but haven’t been lucky in finding something I was happy with. I’ll keep trying, RE Agents are getting to know me now (probably getting sick of my enquiries).

Kay, sounds fun your version of monopoly, I used to play it a lot as a child, except the Dutch version.
I wonder why there isn’t an Aussie version with Balmain and Mount Morgan and Broken Hill etc, would be so much fun! Why do Aussies always have to play some-one elses games?!
Oh by the way shouldn’t we have a Henry Kay piece as well, and then leave him rot in the local jail! Maybe Neil Jenman can be his visitor and there may be a bashing.[ohno2]

Yes I am a negative gearer and a positive cash folw person as well, I invest in all types of property and am now developing land subdivisions which is very exciting because you can get free land to build properties on.
To advance the origional question I would like to know how may people on the site own any property at all who post comments. regards Phil

I have three CF+ve properties in NZ, yielding 20 percent each, 10 percent after holding costs.

“The houses priced <200K will always increase and demands will always be good and if not, it will only be transient because popn is always growing and people need a place to stay and they buy whats affordable.”

I so agree with that. In the nZ market you could say houses under 100k, or even under 50K. I’ve noticed it, because that’s the bit of the market I’ve been watching. I also see the figures about what capital gain is doing, and I’ve noticed that the lower priced houses have different growth to the middle and higher ones. I guess, anyone who can afford to buy a house can afford the cheapest ones, and as you go up in price, the buyers get less and less. So yes, i think there will always be more competition for the lower-priced properties.

In answer to SIS’s original question – I am so a negative gearer it’s not funny!!! In fact, it’s not funny cos it’s cost me quite a bit over the years!

However, I would not buy a house with less than a 6.5% rental return. This used to mean that at least the rent covered the interest. Not quite anymore though.

At present, my portfolio (3 townhouse, a 2 x 2 bed flats, 3 2 bed units) is running at slightly positive in the rent vs interest. I have to pay the other expenses out of my pocket – although my tax return covers all costs.

I’m more than happy though, as my equity has quadrupled in the last two/three years.

Cheers
Mel

hi melbear,

“I’m more than happy though, as my equity has quadrupled in the last two/three years.”

yeah. well I think if there’s a time to neg gear, it’s in a boom. I am glad I am going to be in time for the next Aussie boom, though!

Who Says You Can’t Buy Positive Cashflow Properties?

I’m not talking about buying way out in a mining town. My example is based on typical properties in one of our fastest growing shires, Caboolture. The only catch is you need to be a high income earner whose employer will allow you to salary sacrifice. The following is based on a couple where the high income earner earns $80,000pa and the low income earner has no other income than the rent. They own the property jointly.
House $230,000 Rent $210pw:
Income $210 x 52 = $10,920 Assume: Bldg Deprn $130,000 x 2.5% $3,250
Less Cash Flow Expenses: Plant & Equipment Deprn 700
Rates $1,600
Interest $230,000 x 6.5% 14,950
R&M 500 Tax & Medicare on $80,000 $24,407
Insurance 400 17,450 Tax & Medicare after introducing the
Out of Pocket 6,530 rental property & salary sacrificing the
cashflow expenses. 17,843
Less Tax Reduction 6,564 6,564
Positive Cash Flow 34

Go to http://www.bantacs.com.au for a calculator that will allow you to work out your particular circumstances.