All Topics / General Property / Positive or Negative?

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  • Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
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    Have you or your banker/broker done any cashflow analysis? Start from here. Measure the total net loss you are incurring per year and weigh this against the projected CG. You should be doing this for every purchase.

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of FreckleFreckle
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    Nope. They're tradies who've stopped selling their services for a pittance (comparably) and subcontract their services. Basically you set up a company ($600 on the net all done and dusted takes about an hour at most) and subcontract to the many and varied clients available in the mining areas. 

    I used to do it with trucks and know many up your way and Hedland who sub themselves at $120 +/hr. Your investment will run to about $60k initially (mine spec'd vehicle) and up to $100k as you get geared up. You get that back within the first 6 months usually.

    Most of the guys I know who do this pull around $8 -10k /wk. Add staff to that and you start to see where 500k/yr comes in.  That's a really basic operation.

    So instead of farting around with property why don't you figure out how to leverage your trade into a self employed opportunity, run your own business and really make serious money. 

    You put money into property to diversify your investments (surpluses from business) and to store your wealth somewhere at relatively  low risk.

    The real money is in business not property.

    Profile photo of JothamJotham
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    @jotham
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    Freckle

    Very good advice in general, I’ve thought about it before but knocked it back. I’ll definitely take it back into consideration now

    Thanks for the advice much appreciated

    Profile photo of JothamJotham
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    Thank you for great tips and advice, I hope good opportunity comes your way

    Profile photo of BigCubezBigCubez
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    Jotham wrote:

    I am entitled to FHOG but its only around 7k

    Jotham,

    There is no 7k anymore. But as a first home buyer, if you buy a new home you are eligible for 15k, if you buy an established home you don't get anything.

    Regards,

    Cubez 

    Profile photo of JothamJotham
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    @jotham
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    Hi Tuo Dong

    PC properties are everywhere, in all states, though sometimes they work out to be positive after tax  breaks.

    The aim of the game is to buy property with both PC flow and good capital growth from day 1

    example:

    Buy property for under market value

    Buy property, fix it up make it look nice or add something, then rent it for more

    Buy property in high yield areas

     Throw down a large deposit 

    there are heaps of ways to find positive cash flow property's you just have to think creatively and bingo 

    Profile photo of DerekDerek
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    @derek
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    Hi Tuo,

    There is no right or wrong answer.

    One of the reasons you'll get conflicting points of view is that many people do not understand there is not a one size fits all model and that you need a combination of growth and cashflow to successfully invest in property.  One without the other and, sooner or later, you will reach an impasse.

    And when you hit the sweet spot you get both in the one property. Typically these would include renovations, buying under market value, small scale developments, small sub-divisions, buying under value and so on. Each of these does not come without risk but then walking across the road can also be a risk from time to time.

    At your age and income you have plenty of time on your side so there is no need to rush forward and in your haste make a mistake. Step back and try and work out what is right for you. 

    One of your primary considerations is your current employment – while the income is very high (congrats by the way – you must have excellent selling skills) I would be very thoughtful about the level of security & certainty of employment and income in your current position. I don't know what sales area you are working in but make sure you do not over commit yourself in the portfolio building phase of your journey.

    Some throw away lines (in no particular order) for you to consider in your deliberations:

    1. Retain cash in an offset account as a buffer and just in case your employment/income turns south,

    2. Work out what YOUR long term strategy will be. This can evolve over time but have a big picture in mind when you start.

    3. Some people throw their investing net as far and as wide as they can and miss some opportunities right in front of their noses.

    4. Study your preferred area so you can spot a bargain. This will take time and be prepared to wait.

    5. Continue to build you cash reserves to make your eventual borrowing position as strong as it can be.

    6. Do lots of reading to build your knowledge base.

    7. Find yourself a decent broker so they can help you along the way. A good one will be invaluable to you as you progress along your journey.

    Hope this helps.

    Profile photo of EmilEmil
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    @emil
    Join Date: 2012
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    Hi,

    Investors prefer units to houses, because prices don’t fluctuate as much.

    To make the most of your investment, carefully consider the mortgage broker you want to work with, the depreciation and tax deductions, and the location. Check what’s fueling the local economy, choose a spot where the industry is active and produces jobs that attract people to the area. This will get you significant capital gains, not just positive gearing.

    Cheers,

    Emil

    Sunbuild Invest

    Profile photo of Richard TaylorRichard Taylor
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    Look guys i hate to disagree but i come across positive cash flow deals regularly without going to mining town, developing or renovating to create equity.

    It all boils down to knowing your areas inside out doing your research so that for every dollar you offer you can ascertain the exact return.

    Then being fairly aggressive in your offer (Getting your finance pre-approved upfront helps your negotiations) and it becomes like digging for diamonds in the dirt.

    I spent a decade building and growing my portfolio and certainly could not have done so without buying properties which gave me good quality cash flow.

    This is the same attributes i allocate to my investor clients when analysing a deal for them.

    At the end of the day the property should stand on it's own two feet with the Capital Allowance & Depreciation claims being like the cream on top.

    If you are unsure as to where to start engage the services of someone with experience in the field.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    0-40 Properties in a decade with an unencumbered value of over $35M. Email for a copy of my API article

    Profile photo of Magpie SeasonMagpie Season
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    Good post xdrew . I am refinancing an IP at the moment and looking to buy another . My broker initially said to get a LOC but now seems to have gone cold on the idea , ive never used a credit card. He prefers now to only borrow for a deposit .

    In researching HELOC one point that stuck out is its better to setup a LOC while your healthy because if you break a leg say or off work for an extended period it will be more difficult to obtain any credit to pay the mortgage bills etc.

    Income insurance seems very expensive and my wife is a long way from a good salary.

    Is it possible to get an LOC at home loan rates or is there always a premium ? What is the normal premium?

    Any other thoughts on an LOC welcome

    Profile photo of Jacqui MiddletonJacqui Middleton
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    Agreed.

    Positive = The property will pull its weight and allow you to build your portfolio further.

    Negative = If there is capital growth good, though remember it is not guaranteed.  Either way, capital growth does not get the mortgage repayments made.  Rental yield does.

    When agents try to hype up a property to me because it has "better capital growth potential" my response is always the same.  I am a yield buyer.   For sure I expect a property to go up in value at the usual rate that property should.  But I also expect it to pull its weight along the way.  Property is an asset class you tend to hold for a while, and a decade is an awful long time to keep all fingers and toes crossed hoping and praying for capital growth to make up for lack of yield.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of zorrohdzorrohd
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    Hi Jotham,

    Lots of good advice here from all these wise, generous and no doubt wealthy people.

    You don't mention your age, but I assume you are in your 20's, given that you mention living with family, and don't appear to have any kids.  So you've got a lot of time on your side.

    for what it's worth (and its probably not much given I'm only a newbie) I'd suggest you just buy something.  Soon.  It doesn't have to be expensive, in fact, the cheaper the better.  The less you spend, the less you can lose, right?  And your knowledge trajectory will reach new heights as soon as you actually get truly involved and committed.  I just bought my 2nd IP (first one bought 15 years ago, so I'm just about a ……  again) last weekend for my SMSF and going looking again this weekend, also expanded search interstate.  Now I'm committed, I've learnt more in the last week than I had in the last year (a big thanks to Richard Taylor or QLD007 on this site).

    The house I have bought is a 3 bedroom brick veneer on a 600m block.  It's in a regional Victorian town of 20,000 people with good infrastructure, and a rental vacancy rate of less than 1%.  Rent is $235 per week.  House cost $153,000.  So it's cash flow positive.  Its a good house for a good price.  It's easily rentable or re-sellable.  So even if it's not 100% 'right' strategy wise, it will do until I find something better.

    And there's thousands of such properties around Australia.  Good nursery school, I reckon.

    At some point, you need to buy something.  You may well feel under prepared, but you will learn very quickly once you get started. 

    Great to see you joining the journey, cheers

    Profile photo of JothamJotham
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    @jotham
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    Hello zorrohd

    I know I am very greatful for the generous people on this site who have taken the time to share their thoughts.

    Good guess you got me, 28 no kids living with family, at the moment because of some things I'm in a position to save, I can't buy because I'm unstable, I've just had an operation, I haven't worked since December, I just got a job fixing buses the other day, I don't get my licence back until July, then I'm off to Darwin but hopefully Queensland, taken off in my troops and caravan hunting more work, I'm in sydney ATM but I want to move and live in Queensland far north so… and not exactly sure what I'm gonna do, I have boat, cars, drums, and a whopper ducati all stored that I've worked hard for and I miss my lifestyle. So when I'm ready I may now buy a PPOR. 

    Gathering what I've learnt, by buying at a discount,  and a house that I can do minor cosmetics, with the correct financing structure I'm hopping i can gain equity strait of the mark and buy an investment property. The max I'm going to spend on the PPOR is 350k  with 15% deposit, so far mortgage have advise I take an interest only loan with an offset account. 

    Congradulations on your investments, glad to hear you have found a PG property I hope they secure your future. But what bargin in Victoria hey good on you, Great team on board here, I can't wait to have them apart of my team

    Jared

    Profile photo of FredGFredG
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    @fredg
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    If you currently have a high income and are paying a lot of tax then you should buy a property with capital growth (which most likely will be negatively geared).

    What this means is that you will pay more interest on your loan than the rental income you will get from your property. The shortfall you will be able to claim back from your tax. This way you are basically using your tax money to own your investment property instead of giving it to the government.

    The gain from this strategy will come from the capital growth of the property (which wont be taxed unlike a cash flow positive property where you will be taxed on top of your salary).

    Theoretically you can use this strategy until you lower your tax to 0. However your cashflow will suffer from this.

    This would then be a good time to buy positive cash flow properties. However positive cash flow properties are hard to find. So to increase your cashflow I would rather focus on getting a higher paid position or investing/setting up a business.

    This is just my opinion and the strategies I use personally and may not necessarily apply to your situation.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
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    FredG wrote:
    If you currently have a high income and are paying a lot of tax then you should buy a property with capital growth (which most likely will be negatively geared).

    What this means is that you will pay more interest on your loan than the rental income you will get from your property. The shortfall you will be able to claim back from your tax.

    Hi Fred

    Perhaps I've misunderstood what you mean, but just to clarify:  Negative gearing absolutely means you will make a cashflow LOSS.  A cashflow loss on an investment property does not entitle you to a refund for your loss – merely to reduce your taxable income earned from other sources (such as the salary from your day job).  Just to be really clear – the ATO does not give you back your loss dollar for dollar.  You get a portion of it back.  The easiest way to explain it in general terms is that the "portion you get back" depends on which tax bracket you are in.  Best case scenario you get back the percentage relevant to the highest tax bracket (ie 45c).  So you still remain out of pocket 55c for each dollar loss on your property.  (So if your "loss" was $10k, perhaps you will get back $4500 but you remain out of pocket by $5500).  You are still making a loss no-matter which way you look at it.  If you have no salary or other income to add your loss to in order to reduce your taxable income, then you remain out of pocket for the entire amount – because you have no income to "reduce". 

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of JothamJotham
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    G'day FredG

    Interesting thought, a financial advisor suggested the same idea with negative gear and tax logic however, I would only invest in negative cash flow if I was certain in the near future I would gain capital but, then I would want to collect profit and buy at least 2 positive/neutral cash flow investments from the gain, I will try to avoid negative because I'm looking for cash flow, if I was to buy a house for 250k and it was to grow by 7% that would be a deposit for the next one and they look after themselves. repeating this over a period of 10 years  can create financial independence and if I was to lose my day job I wouldn't be stressing. 

    I can't come to terms with something costing me money in hope of capital gain yet. Because I like cash flow first then, create the way for capital gain, that's the way investing is sitting with me at the moment, 

     buying a business to create extra cash flow is a great idea, but banks will only lend you up to 70% and some businesses are expensive, also 

    i don't think banks lend based on good will. Also business takes up more of your precious time, responsibility and risk so depending on the pay off and quality of life would base the decision not to mention the maths. 

    However being time rich there are many positives and how awesome it would be if you could turn this into a reality, and I will definitely keep an eye open for a good opportunity because one day there could be the possibility when I'm property savvy.

    Thanks for the thought FredG 

    Profile photo of JothamJotham
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    @jotham
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    Sorry I forgot to add, what's the angle on your post FredG do you use this structure to pay for your investments? Did you buy an established business or did you start your own business? 

    Is your structure set up in the best way possible to support your property portfolio?

    Profile photo of gmh454gmh454
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    @gmh454
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    I'm an accountant, one of my favourite stories is from a colleague.

    back in the early part of last decade when everyone was buying, and property was going to double every 7 years, one of his clients, bit the bullet and bought up big. (never asked the accountant first, but that is pretty usual).

    At the end of the year he had managed to completely wipe out his income, (property losses exceeded wages).

    He got back around 30K in tax, and asked is "that all" ????. My friend tried to explain that you can only get back what you pay…

    he said …  "but that man at the seminar had said he would get back 45% ($50K) … are you sure you are right …"

    "the man at the seminar "… wonder how many times people hear this

    Profile photo of TerrywTerryw
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    @terryw
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    gmh454 wrote:
    I'm an accountant, one of my favourite stories is from a colleague.

    back in the early part of last decade when everyone was buying, and property was going to double every 7 years, one of his clients, bit the bullet and bought up big. (never asked the accountant first, but that is pretty usual).

    At the end of the year he had managed to completely wipe out his income, (property losses exceeded wages).

    He got back around 30K in tax, and asked is "that all" ????. My friend tried to explain that you can only get back what you pay…

    he said …  "but that man at the seminar had said he would get back 45% ($50K) … are you sure you are right …"

    "the man at the seminar "… wonder how many times people hear this

    The good old ‘man in the seminar’ has been responsible for many a misunderstanding!

    So this guy wanted to get back more tax than be actually paid.

    I had a friend who got into a panic when her unit became cashflow positive. Her accountant told her she would have to pay more tax but a way to prevent this was to do a reno. So she did a needless reno on the bathroom

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Daniel_95Daniel_95
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    @daniel_95
    Join Date: 2013
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    Terryw wrote:
    gmh454 wrote:
    I'm an accountant, one of my favourite stories is from a colleague.

    back in the early part of last decade when everyone was buying, and property was going to double every 7 years, one of his clients, bit the bullet and bought up big. (never asked the accountant first, but that is pretty usual).

    At the end of the year he had managed to completely wipe out his income, (property losses exceeded wages).

    He got back around 30K in tax, and asked is "that all" ????. My friend tried to explain that you can only get back what you pay…

    he said …  "but that man at the seminar had said he would get back 45% ($50K) … are you sure you are right …"

    "the man at the seminar "… wonder how many times people hear this

    The good old 'man in the seminar' has been responsible for many a misunderstanding! So this guy wanted to get back more tax than be actually paid. I had a friend who got into a panic when her unit became cashflow positive. Her accountant told her she would have to pay more tax but a way to prevent this was to do a reno. So she did a needless reno on the bathroom

    Stupid, i would rather be taxed on a profit rather than subsidised on a loss.

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