Is the real trick to making something CF+ that you have to
A) Put enough of your own cash down to make the repayments so small to that the rent will cover the interest? This is hard to do as you need about 50% deposit!
or
You need to have something with a heavy depreciation schedule to boost your deductions to make it CF+ or
C) Both?I do actually have a CF+ place – on paper – courtesy of getting it at a good price, and a healthy deprec schedule worth about 6k a year….
its more like neither. putting enough of your cash into deposit isnt such a great idea as it means your cash on cash return will be significantly lower than puting in the bank. This just means that you're probably better off putting your money in the bank, earning monthly interest in it (risk free) than putting it on a house.
Your second method works, but is only good when you cash your cheque in from your ATO. you're still incurring negative cf during the whole year, and not to mention, when you sell the house, the value of the house is the depreciated value, meaning you're gonna cop it big time with capital gains when you do sell the house.
the only way to satisfy the above is the manage the deal so that it is works. and thats the very, very difficult bit.
But if you never sell the house you never have to pay any CGT.
Better to utilise the tax benefits and depreciation to improve the cashflow, pay down the debt with it, increase the equity and use the equity to fund more of same in my opinion.Hey Fishman,
Your point B can be accurate, you do not need to wait until the end of the financial year to recieve your money back, just fill out a tax witholding payment form at the ATO and you can get that tax back week by week in your pay. This is a strategy most people use when growing a portfolio.
However, you need to be careful with your depreciation schedule, depending on the method you chose, the depreciation can go from 6k in the first year to about 4k in the 3rd year and if your rent hasnt increased to take that in that loss,then you can end up with neg cash flow.
I think the strategy people are using most to find +cash flow, is to buy a bargain (get your hunting shoes on!) and renovate before renting out.oneiricer wrote:its more like neither. putting enough of your cash into deposit isnt such a great idea as it means your cash on cash return will be significantly lower than puting in the bank. This just means that you're probably better off putting your money in the bank, earning monthly interest in it (risk free) than putting it on a house.The sad part about have money in the bank is it gets eaten up by inflation, has zero capital growth and zero gearing,
so your healthy return of 6.25% from ING after tax depending on your tax bracket is about 4% take away inflation brings the return down to less than 1% per year, I would hate to think that inflation might spike to 8 of 10 percent for just one year and wipe away 5 or 6 years of investment income,
Who says money in the bank has zero risk investment,
There are CF+ places in regional areas that will be CF+ without doing anything. Just go to realestate.com.au and do some research.
Here are some quick examples I found without much effort at all. If you can bargain down the purchase price they're even better deals.
Hi, the easiest is to find the +ve gearing in the 1st place but if you can see it, everyone else can do so such an animal seldom exists.
Occasionally, you can find undervalued properties & they're usually ones with quirky problems like rundown condition, near busy tracks etc.
You can also build, in which case you face the risk of falling property prices. This last method is a good one if you think the property prices have plateaued and rental is steady. In Adelaide, there's been a combination of all three with the result that anyone who built has ended up with extra equity (instant equity), rents that are higher than originally forecast, new houses with good depreciation and best of all, very easy to rent. Who wouldn't want to rent a new house rather than an old one?
One can also find an old house on a big block and extend the building in which case there may be 2 rentals instead of one and the new construction is depreciable.
Before you rush out to do any building, I can tell you from experience that it is very stressful. And your extension may be knocked back by council.
Hope everyone DOES somemthing, only way to learn.
Kum Yinoneiricer wrote:its more like neither. putting enough of your cash into deposit isnt such a great idea as it means your cash on cash return will be significantly lower than puting in the bank. This just means that you're probably better off putting your money in the bank, earning monthly interest in it (risk free) than putting it on a house.Your second method works, but is only good when you cash your cheque in from your ATO. you're still incurring negative cf during the whole year, and not to mention, when you sell the house, the value of the house is the depreciated value, meaning you're gonna cop it big time with capital gains when you do sell the house.
the only way to satisfy the above is the manage the deal so that it is works. and thats the very, very difficult bit.
Thanks All!!!
What does it mean when oneiricer says "……when you sell the house, the value of the house is the depreciated value, meaning you're gonna cop it big time with capital gains when you do sell the house".
Confused.
From my understanding,
The capital gains is the increase in price from what you paid for the property and what you sold it for.
If the property has been depreciated, say as an example by $10,000 over x years, the purchase price is then worked out to be the original price, minus the $10,000 that has been depreciated, therefore you have to pay extra capital gains on the $10,000.please correct me if i am wrong anyone, this is just what i have concluded from reading through the forums.
Tattsyes if you claim depreation you will be subject to more capital gains tax because if you purchased your property for $100,000 and then claim $1000 depreation your capital gain will be calculated on a purchase price of $99,000 ( correct me if I am Wrong)
So some people look at say that they don't want to claim depreation because they don't want to have to pay it back when they sell the property, How ever remember if you hold your property longer than 1 year you get a 50% capital gains discount, so you only have to pay back 1/2 of it.
and also If some one gave you $10,000 Interest free and said pay me back in 5 years would you take, of course you would you can use the money to save interest on your loan, make improvements that increase your rental yeild, or buy some shares.
Thank you Bennido for providing examples for us new to this investing!!
However when I look at the first property and apply the "11 second solution" that Steve McNight advocates it does not fit into this category. Am I missing something?
Tyson I like how you compared the depreciation to borrowing money.
People always say you can't save atx, but just defer it.
Thats like saying to your friend Bob if you can borrow 10K now and give him back 5K in 10 years. More logical to do this, evne though you have to less than half back due to inflation and the 50% discount.Great stuff, depreciation, every investor should get a quantity surveyor(i think thats what they are called) to do a thorough examination of every property to claim as much as possible, you can also claim the expenses on the actual quantity surveyor.
Christopher Fife.
P.S. And if you don't sell, its pretty much like saying oh sorry Bob, your not having any money now and you keep all of it.
Shane Law wrote:Thank you Bennido for providing examples for us new to this investing!!However when I look at the first property and apply the "11 second solution" that Steve McNight advocates it does not fit into this category. Am I missing something?
Forget about the 11 second soloution, it's obselete, read steves latest book.
Shane Law wrote:Thank you Bennido for providing examples for us new to this investing!!However when I look at the first property and apply the "11 second solution" that Steve McNight advocates it does not fit into this category. Am I missing something?
No prob mate. And those were only some examples that I got off the net after doing 10 minutes worth of searches.
No doubt that once you hit the pavement and start talking to agents, you will find more.And yes, it doesn't fit into the 11 sec solution but even Steve admits the rule is no longer very relevant.
In short, you can still get very good return +ve CF properties without doing anything much other than good research and bargaining skills.
I value my time a lot and I hate doing any manual work, so I look for solutions if possible.
Using myself as an example, I own 5 investment properties valued at around $800K bought over the past 4 yrs, all are +ve CF and I did NOTHING to any of them. Not even a fresh coat of paint !
bennido wrote:There are CF+ places in regional areas that will be CF+ without doing anything. Just go to realestate.com.au and do some research.
Here are some quick examples I found without much effort at all. If you can bargain down the purchase price they're even better deals.
LOL .. just realised one of them got sold today ! ..
Wonder if it was bought by someone in this forum .. c'mon own up ! .. I deserve a "bird dog" commission … a lunch maybe ?? .. heehee
I wish I bought one of them, then I would be officially a property investor.Give me 2 and a half years and I will be jumping in and soaring higher and higher.
I'm so excited about my future, I don't know how people can keep on living their day-to-day if they have no dreams or desires.
You've got to dream a little, then wake up and tackle the world with your team of professionals by your side.Chris.
DraconisV wrote:I wish I bought one of them, then I would be officially a property investor.Give me 2 and a half years and I will be jumping in and soaring higher and higher.
I'm so excited about my future, I don't know how people can keep on living their day-to-day if they have no dreams or desires.
You've got to dream a little, then wake up and tackle the world with your team of professionals by your side.Chris.
Don't worry mate .. as long as you are motivated, have a clear plan and persevere, you'll get there …
I have to say reading Rich Dad, Poor Dad and Steve's first book really changed my life .. and like Steve, my best advice for beginners is to start small ! .. my 1st 3 investments were all under $100K in regional towns …
I was trying to imply that it is not 'sustainable' which is to say, there is an extent to which you can depreciate properties, correct?
Yep thanks!
You need to have something with a heavy depreciation schedule to boost your deductions to make it CF+ or 
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