All Topics / General Property / Positive or Negative?

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  • Profile photo of JothamJotham
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    @jotham
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    Hello

    Thank you for time you have taken to read this post,  any suggestions will be greatly appreciated

    For a high income earner say 120kpa is it better to buy positive cashflow IP's or Negative cashflow IP's?, I have read Steve's book and Steve recommends positive cash flow properties,  would you suggest they be after or before tax? 

      A financial advisor i have recently seen says, he would like to see a high income earner buy property using tax and tenants to pay the bills, So negative gear.

    If your ambitions were to live mostly on a passive income how would you structure it?

    Would you enter cheap with a 50k deposit, or buy in the Bowen for 500k, unit or a house? positive or negative? do you need more of a deposit? is it worth getting in with a lower deposit?  

    Profile photo of Jamie MooreJamie Moore
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    Hi Jared

    Welcome aboard.

    I wouldn't invest for the primary purpose of trying to reduce your tax bill.

    It doesn't make sense. You have to lose a dollar to get back 30 or 40 cents.

    The tax benefits associated with property investing should be seen as a bonus – not the primary driver behind your investment decisions.

    Cheers

    Jamie

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    Profile photo of TheFinanceShopTheFinanceShop
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    Negative gearing is a benefit and not the sole reason you invest in property. Remember that at the end of the day negative gearing means that you are losing money.

    Have you thought about CG? Have you come up with a IP strategy? Have you thought of medium to long term?

    Regards

    Shahin

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    Profile photo of RPIRPI
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    An overall structure is a good start, looking at whether their are different entities that can be used for your income.

    Tax reduction should be ancillary to the investment benefits.  Need to work out what you are trying to achieve.  Some people live off their cash flow positive property, others are accumulating appreciating assets that may cost them money.

    Outline what it is you want to achieve and then you should get some great info from this forum.

    D

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    Profile photo of JothamJotham
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    hello

    Thank you very much for your responses

    Ok., I have 30k saved and earn 100k py working as Diesel Fitter with a 15k dept on my Ducati,  I have been working in Karratha and just got home to Sydney, and will be here until no later than July, then off again to Bowen area.

    In Sydney I do not have a house I live with my family and am very lucky not to be paying rent.

    This is what i am thinking, I'll work and live in Mackay for 6 months If the area seems true I will buy there. Thinking to buy a unit, live in it until I can afford to rent it out, the purchase price would be for around 250-300k. I will only buy if number crunching showed  PG. 

    I've heard Mackay is a good strong area which shows good CG and can still be PG 

     

    Should I enter the market on a 50k deposit and buy a unit or, save as much as I can and try buy a house? This will be my first property so I have to make it a good one.

     I don't want to stay in Mackay longer than I have to so when I can afford to move on I would to like buy a place I call home in cairns. Then hopefully as soon as I can after that really get cracking on some Positive Gear property.

    This is my ultimate plan, what do you think? 

    Profile photo of TheFinanceShopTheFinanceShop
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    Sounds like you are purchasing the property in Mackay as a PPOR and then turning this into a IP. If this is the case then you want to be wary of paying it down. You need to ensure that the structure is set up correctly.

    Secondly, are you purchasing in Mackay because you are going to be working there or because there is scope for good CG? Im going to play devils advocate and ask is it better to rent in Mackay and purchasing a property in an area or property type (ie. a house instead of a unit) that will give you stronger CG, and you can claim as negative gearing from day one. 

    Also are you eligible for the FHOG – this may make a difference in terms of your strategy?

    Your plan sounds good but maybe compare this with another strategy and see how it weighs up.

    Regards

    Shahin

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    Profile photo of Nigel KibelNigel Kibel
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    Look at lot of people here talk about positive cash flow however the only way to do that is buy in a mining area, develop property or renovate to improve the value of the property

    However the only way to create wealth in real estate is to look at capital growth. The better the capital growth the more your wealth will increase. So you can look at different strategies to achieve that however the only way to build real wealth is to achieve the best capital growth you can.

    If you buy a whole lot of property that is cash flow neutral or even a little positive but there is little or no capital growth my question is what is the point.

    Now I develop property and that allows allows us to keep property at a wholesale price but we target areas with strong growth

    I also deal in the United States where it is still possible to buy apartment complexes where you can borrow between 60-90% through a commercial bank where you cash on cash returns can be 14% net or higher

    So look carefully and think through your strategy before you decide to move ahead.

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    Profile photo of TerrywTerryw
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    jared denny wrote:
    Hello

    Thank you for time you have taken to read this post,  any suggestions will be greatly appreciated

    For a high income earner say 120kpa is it better to buy positive cashflow IP's or Negative cashflow IP's?, I have read Steve's book and Steve recommends positive cash flow properties,  would you suggest they be after or before tax? 

      A financial advisor i have recently seen says, he would like to see a high income earner buy property using tax and tenants to pay the bills, So negative gear.

    If your ambitions were to live mostly on a passive income how would you structure it?

    Would you enter cheap with a 50k deposit, or buy in the Bowen for 500k, unit or a house? positive or negative? do you need more of a deposit? is it worth getting in with a lower deposit?  

    Jared. from this post it sounds like you don't understand the concept.

    From an income tax perspective It would be better to positively gear every time because you would be making money.. But this is only part of the story. You will not get rich from positively cashflow alone – but probably worse off in the long run.

    Capital growth is what you should be focused on. This is where you will make money. Aim for high rents as well. Rent is income and you want as much of this as you can get. If you get high growth with positive income this would be even better.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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    Profile photo of xdrewxdrew
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    Positive cashflow should always be seen as an opportunity and not an expectation.

    The most importatnt single rule I have learnt about property is to class my investments as dependencies (I need them to be producing CASH) and as ongoing strategic investments (they make money .. thats nice .. no expectations).

    With my positively geared properties .. historically I have used the excess cashflow to actually reverse the situation and buy something solid in a good area of town with a low net percentile return working at a loss. So basically buying Grade A properties using Grade C income.

    I have no expectations of my positively geared properties except for the ongoing income and lack of hassles. Outside of that they just sit there and do their thing.

    Once you have ANY format of extended cashflow OR INCOME over and above making a break-even, the way you offset what will eventually be a taxable income is up to you. But .. as I have always stated previously .. its a very brave individual who doesnt back himself up with a 'just in case' scenario. Always leave flexibility in your options.

    Negative gearing? Nice idea, but gearing to the hilt is like trying to max out the roulette board and then pray that it wont land on double zeros. Most of the time you'll be good, and then .. there are times you wont be. Always leave flexibility in your options. Did i just repeat myself? No, it requires the same flexibility.

    The single biggest mistake you can do in any format of property investing is not leave the capability to reinforce your investment should something happen. Leaving yourself this safety zone allows your risk element to be minimised and your property enjoyment to be sustained.

    Profile photo of FreckleFreckle
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    Here's a choice for you. Would you rather invest whatever you save into property and make virtually zip over the next 5 years (may even loose out) or would you prefer to invest in yourself and triple your current income doing what you already do? It's less complicated than property, considerably less leverage and risk and you can grow exponentially if your that kind of person. In 5 years I would expect you to be making in excess of $500k/yr. 

    Profile photo of JothamJotham
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    how is an efficient way to navigate through areas in search of CG on internet, How do you really find out what a good CG area looks like. Might seem like a dumb question but, Im on the net as is a passion of mine learning about property, reading articles and  bit by bit adding to my knowledge.

    From your experience how do you sort out good property deals

    Profile photo of JothamJotham
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    Thank you for your valuable response, I will re think my strategy and see what else I can compare with.

    Jared

    Profile photo of JothamJotham
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    Thats what I was intending on doing however I must be missing some parts, Obviously the figures, it seemed like a good idea but i cant see the proper stucture, The financial advisor seemed to think this would be ok..

    From what Ive learnt Mackay looks good for CG this is why i chose that area but, Im aware its not the only area for CG so I have more home work to do.

    Goal is CG and positively geared.

    I am entitled to FHOG but its only around 7k

    I will find another stratergy and see how it compares, any suggestions on a stratergy?

    Profile photo of JothamJotham
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    Thanks Jamie you are 100% right.

    Do Pass Go Home Loans also offer strategy and wealth creation advice?

    Profile photo of simplesimple
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    @ The Freckle

    Funny how no one actually commented this. This is the ULTIMATE investment strategy. RE is a side dish where you sink some money just to give you some diversification. This is in case if you take Diversification as the Insurance against your ignorance (W. Baffet).

    Best is to invest what you are good at, not in RE, Gold, Shares, Land…

    Profile photo of simplesimple
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    @ xdrew

    I will add to the above that with some creativity and bargaining you can get positive cashflow in areas of reasonable/good CG. Even more so lately, many vendors are discounting and some are under pressure.

    I am also big supporter of the idea of leaving some 'buffer' as XDREW mentioned. Our calculations of risk include loss of main income for periods of up to 2 years. If you can make 2 years without going broke, it's a good start. 

    This is where cashflow positive properties really count!

    Profile photo of TheFinanceShopTheFinanceShop
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    Are you talking about a unit or house? What is average net loss per year for the next 5 years?

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of JothamJotham
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    Haha lol

    Ok so you see through my cracks, I am learning… Where did you start?

    Profile photo of JothamJotham
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    And who do you talk too, who knows enough about what there talking about.

    The best I got was borrowing 100k from Macquarie bank and only paying interest pm with a stop loss so basically it becomes a win win situation though the risk is you may make no money but your leveraging 100k and only paying interest lol

    This was from a different advisor.. So I sorta loss interest

    So if Re is a side dish where’s the meat in the share market?

    Profile photo of JothamJotham
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    Ok freckle

    What do you suggest? Sounds like your talking about the share market..

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