Is it more likely to get a positive gear property in a country area? I’ve heard more residential areas and city areas are more negatively geared as they are more expensive etc.. Considering my situation I would rather positive gear an IP as I’d prefer not to dig into my wage to cover that loan to work towards more properties. Also if a property is positively geared does that mean the capital growth doesn’t go up as much?
Appreciate any advice :)
I wouldn’t say there is a abundance of cashflow positive properties in metro areas. Certainly the exist. Most larger commercial buildings would be, units can be, houses rented out by room can be. Houses with granny flats, houses which you might do a quick renovation on to bump the rent can be, subdivisons where you buy house and sell land or build and sell paying paying off the debt.
But you have to know your sums.Expected rental –
Mortgage
Rental management cost. (The full cost not just the weekly %)
Land tax (if applicable)
Rates
Water (sewage charges)
A vacancy period % (2-3 weeks at least)
And a maintenance budget 2 weeks rent at least.And then adding back depreciation if applicable
Ok great thanks. I don’t mind if I don’t get a cash flow but want it positively geared enough to cover the loan repayments or at least close to it.
Hi Kirstie
If you are only aiming for the rent to cover your interest repayments then even with 100% borrowing at a rate of say 4.8% the yield should be sufficient.
Just make sure you are aware of all of the expenses involved.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Ok great. I’m assuming/expecting not to make any money from the IP unless we sold it or owned it outright while its being rented. Is that normally how it works? We just want to be set up for the future it doesn’t bother us if we arnt making a cash flow. Ive ordered a few books to read up about all this stuff too!
Also if a property is positively geared does that mean the capital growth doesn’t go up as much?
It’s a bit of a generalisation but it does tend to hold true (in my opinion anyway).
My worse performing property in terms of capital growth is also my best performing in terms of cashflow. However – the additional cashflow that it generates isn’t significant enough to make a huge difference.
Therefore, I’m a bit of a boring buy/hold in larger cities type investor (even if they are CF negative). As long as I’m reasonably confident there’s going to be decent growth – and there’s also the ability to manufacture some via improvements, then I’d prefer these properties over CF+ properties in regional/rural areas.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Awesome thanks for that. That makes sense. How do people get the money to pay 10+ property rates etc if it’s negatively geared?
Using other creative investing techniques to supplement their property income.
You can read my story on how I amassed all of my properties in my API interview.
PAYG income should certainly not be your sole form of income.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
My partner works also so it would be a combined wage of $140k approx. Do you have a link on that so I can take a Look?
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