High income, need to negative gear, First home buyer

Hi Spandex

Don't focus or whether it's negative/positive geared. Focus on whether it's going to be a good investment for YOU.

Cheers

Jamie

Sounds like you just don't have the understanding at the moment. What you should do is to find the highest paying bank acount and put your money there and save as much as you can, 50% of you income at least, in that.

Do not buy any investment at the moment, but spend one year reading and learning – don't bother paying for any courses.

This will save you money in the end and make you wealthier.

Buying any old property now on the basis of hope could be dangerous.

You should learn from the mistakes of others rather than make your own mistakes.

So keep reading as much as you can and keep on learning. Warren Buffett says the number 1 rule is the preservation of capital. So you don't want to put all your money into a dud property which goes down in value. Think of the effect this would have on you. The loss, the opportunity cost and the lack of you money compounding for you.

Also start playing with excel spreadsheets. Make sure you are able to build your own property spreadsheet to calculate cashlow etc. You will learn more by building your own.

Also, do you own tax return in full and then give it to your accountant to do and see if you have missed anything or made any mistakes.

If you run your own business then why do you pay so much tax?

Sounds like you need to read up on structuring and taxation and trusts etc.

we all do

Hi Spandex

I think there’s been quite a few comments about negative gearing being a bad idea, which I think isn’t completely true. Obviously, a positive geared property is fantastic if you can find it, but it’s often difficult.

Given your high income, you are paying a LOT of tax. You should use it to your advantage (let tax work for you) but it takes a lot more skill / luck to do so – but if you’re a young person making that sort of money, I’m sure you’ll be able to grasp it in no time.

Think about an investment from a net returns on your property cost perspective (I’ll explain it in a second below).

As an example, say you investing in a $440,000 property that is negatively geared. Let’s say it’s an apartment, rents for $500, interest rates of say 7.5% on an all interest loan, strata of $1200pq, council rates of $200pq, water of $200pq.

Here are the numbers:
– Rent: $26,000 p.a.
– Less: Interest: $33,000 p.a
– Less: Strata: $4,800 p.a
– Less: Council: $800 p.a
– Less: Water: $800.a

Loss per annum: $13,400

Based on your income, your Marginal tax rate is about 30%. So your tax deduction is about $4k, so actually outgoing is $9,400 per annum or $180 per week.

Your net loss on your property is $9,400 / $440,000 = 2%, less than CPI. If your property capital gain grows by more than CPI (I would argue that based on your historical averages, it has been the case), then you’re in the green. On top of that, there’s further upside in terms of rental growth.

You’ve taken advantage of the tax deductions and basically reinvested $4K into the property investment p.a.; $180 per week cash outflow is easily achievable given your income. Obviously I haven’t taken into account vacancy or spikes in interest (potential downsides), which is something you’ll need to make an assumption on but the maths speaks for itself.

The key here is that you’ll need to run the numbers. If you don’t have time, try our website.

Good luck and let me know if you have any further questions.

Cheers,
Jase

Try buying POSITIVE geared property…more income=more profit; pay SO much tax that you are filthy rich.

If that fails to flaot your boat, buy a super fund for yourself….much better to pay into an account that you will get back rather than pay it to the ATO.