Forums / Property Investing / Help Needed! / Negatives of Positive Gearing

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  • Profile photo of brunowabrunowa
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    @brunowa
    Join Date: 2008
    Post Count: 27

    Is positive gearing always good? What are some of the negatives of being positively geared?

    There are loads of properties on the market at the moment that are selling for under $200,000 and renting out at around $300 – $350…. mostly studios or 1 bedroom apartments in central locations.

    At todays interest rates these would all be considered positively geared if bought and with loan of 80% against each.

    Are these good investments and what really needs to be further considered when it is positively geared apartment from future rises in interest rates and potential for capial appreciation?

    Profile photo of peterpithpeterpith
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    @peterpith
    Join Date: 2010
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    where are these properties Im keen.

    Thanks mate.

    Peter.

    Profile photo of markh3084markh3084
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    @markh3084
    Join Date: 2010
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    Are you looking at student type studio accommodation near universities such as in Carlton Melbourne etc? If so, you should probably be wary that students only need accommodation for 9 to 10 months of the year so you may face some long periods that the unit is vacant.

    Also, how are students going to treat the property? If you have ten different students renting it out over ten years, it will certainly need major work at the end of that period, so factor these costs in. Also, if its a bit run down at the end of the year, it may be harder to find a tenant the next year when there is a large pool of other properties they could choose from, some of which may be in better shape.

    Just my thoughts….. cheers

    Mark

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
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    You can always ask them to sign 1 year contract… just avoid dec/jan… usually rent it out in feb/march for 1 year contract.

    I hate to say that.. avoid student accomodation at all cost… Unilodge in Sydney can have yied 8-9%.. but dodgy IP with minimal or no capital growth

    Profile photo of TerrywTerryw
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    Positive gearing is good, but there is no point in buying something that has poor growth prospects. You need the capital gains to get rich.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of Paul DobsonPaul Dobson
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    @pauldobson
    Join Date: 2003
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    I agree with Terry.  I always say, it's the equity you own in property that makes you rich.  We use positive cash flowing vendor finance properties to support our negatively geared IP's.

    Cheers,  Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
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    An alternative way to finance your home.

    Profile photo of reecoreeco
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    @reeco
    Join Date: 2007
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    Terryw wrote:
    Positive gearing is good, but there is no point in buying something that has poor growth prospects. You need the capital gains to get rich.

    Agreed. Capital Gains makes you rich. Cashflow helps you get there

    Profile photo of AfricandaisyAfricandaisy
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    @africandaisy
    Join Date: 2010
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    brunowa wrote:

    There are loads of properties on the market at the moment that are selling for under $200,000 and renting out at around $300 – $350…. mostly studios or 1 bedroom apartments in central locations.

    I have heard that the banks are reluctant to lend against properties less than 50 square metres in size. 

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Yes there are.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of reecoreeco
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    @reeco
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    Qlds007 wrote:
    Yes there are.

    Listen to this man. Knows more then this whole forum combined. Except for terryw IMO…  kinda level there :) in there own ways.

    Profile photo of Nathan BirchNathan Birch
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    @nathan-birch
    Join Date: 2004
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    You can buy properties in sydney 2 bed units for $160k renting for $270pw+

    Houses $240k rent for $350pw.

    Studios aint bread and butter so would only buy a 1 bedder if i was nicking it for very very cheap.

    Profile photo of reddahaydnreddahaydn
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    @reddahaydn
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    There's a 2 bedroom furnished apartment in a 3 story apartment block in melb on the same st as a uni, buy 280k, rent 400pw (over 20k pa). (7.2%) they're 2 years old so there would be plenty of depreciation as well.
    I'm not sure if it's soley student only living but they are pretty small apartments so in the end only students live there.

    I'm only new to property investing but i'm going to nitpick markh3084. Student accomodation is still leased on 12 month contracts, doesnt matter whether they live there all year or not.

    Now chances are the students who would live in it would be international students with mommy and daddy paying the rent each month, who are unlikely to damage it like some local students would.

    I'm unsure about the capital growth propsects of this apartment as you only have one buyer group, this being investors. As it's not a studio in a big tower, what do you guys think? I've heard of apartment buildings body corporates getting student only covenants taken off and the prices nearly doubling. Has any one heard about this before? Has anyone owned student only accomodation? The uni is spending lots of money on new buildings to take more students and also is not in the cbd, so there is not loads and loads of student accomodation about like there is around melb uni.

    Any thoughts would be appreciated. Cheers

    Profile photo of Ryan McLeanRyan McLean
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    Join Date: 2010
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    The negative side of positive cash flow is that often the capital growth is less. The guys are right. Capital growth allows you to get rich, but cash flow is necessary to get there.
    I would prefer to own 10 positive cash flow properties than 1 negatively geared property. Even though the growth may only be 4% instead of 10% I can afford more and therefore get richer quicker.

    Ryan McLean | On Property
    http://onproperty.com.au
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    Profile photo of euro73euro73
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    @euro73
    Join Date: 2009
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    The only negatives to Cash Flow positive properties are the perceived negatives.
    1. the properties must be cheaper and therefore are likely to be in less desirable areas and show less growth.
    2. The types of properties that fit CF + profile.  Student Accomodation, regional property etc. May be more difficult to borrow against and LVR's will be lower, generally

    These are all very real issues but arent necessarily limiting. They are certainly not a reason to avoid CF + property, if its the only way you can particpate. What I mean is that for some people, CF + is the only realistic way to go, as negatively geared property is something they cant afford. The monthly holding costs are beyond their budget. Its all well and good to run a property at a loss in the hope of achieving some tax benefits and long term wealth through growth, but that can only work if you can afford it.  In those cases where people cant afford it, CF+ is still a viable investment strategy even though the growth MAY ( and usually will be, to be fair) be inferior. At least you are still able to get involved in some form of property investment.  Something is usually better than nothing, right?

    Profile photo of djjkdjjk
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    @djjk
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    Nathan_b wrote:
    You can buy properties in sydney 2 bed units for $160k renting for $270pw+

    Houses $240k rent for $350pw.

    Studios aint bread and butter so would only buy a 1 bedder if i was nicking it for very very cheap.

    Nathan, ill believe this when i see a link.

    Profile photo of god_of_moneygod_of_money
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    @god_of_money
    Join Date: 2008
    Post Count: 971

    ambosh… it is doable in the rural small town

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