Are you a Yardney or a Lomas?

[Peter Parker]

Another dirty little secret re depreciation: while it is nice to get tax benefits up front, the cost base is adjusted on the sale of the asset, which means that you pay more capital gains tax. This why cashflow analysis is important.

I've heard conflicting stories on this and the article below discusses it further.

http://www.rs.realestate.com.au/review/jun06/article4.html

However even this is not clear, eg

"In addition to the above, owners of rental properties purchased after May 13, 1997 have to contend with reducing their cost base by any building depreciation claimable. That is right – claimable, not necessarily claimed. Nine years after the introduction of this rule the ATO is finally taking steps to make it more fair and manageable."

refutes your point - ie even if you don't claim it you must still pay more CGT (due to a lower cost base)

But the case below:

"In PSLA 2006/1 the ATO is of the opinion that if you have not been prepared to incur the expense of a quantity surveyor’s report in order to qualify for the deduction during the period of ownership, you should not be forced into incurring the cost just to calculate your capital gain. Accordingly, if there is no method of ascertaining the original building costs other than a quantity surveyor’s report, you’re not required to reduce the cost base by any claimable building depreciation as long as you have not claimed any during the period of ownership."

supports your point about the cost base not having to be adjusted if you don't claim depreciation

 

[JohnHenry]

wow, this is a very good hread to read.

so why there is no Custodian Wealth Builder (John L. Fitzgerald) or JDL Strategies (Julio De Laffitte) ?

 

[Ausprop]

I haven't taken either path. I'm not too impressed with the results I've achieved from choosing my own path either. I'm looking at alternative avenues at the moment. I'm not jumping into anything, but I'm looking forward to doing something different.

dont be too harsh on yourself. a run up in prices spanning decades has fooled even the most educated investors. Just be careful the tide isn't going out just as you expect it to rise higher!

 

[Ausprop]

Another dirty little secret re depreciation: while it is nice to get tax benefits up front, the cost base is adjusted on the sale of the asset, which means that you pay more capital gains tax. This why cashflow analysis is important.

of course a revenue dedution is worth 2 x cap gains.

Spiderman I don't think there was a suggestion that you don't claim it - I think it was just a point that it is not a free ride?

 

[Ausprop]

wow, this is a very good hread to read.

so why there is no Custodian Wealth Builder (John L. Fitzgerald) or JDL Strategies (Julio De Laffitte) ?

you do realise what JLF advocates? at least yardneys sales model puts people into quality suburbs. far flung new estates stuffed full of commish... could be waiting 15 years to see anything out of that

 

[JohnHenry]

you do realise what JLF advocates? ....

I don't know that's why I ask :-o ? because they charge commission 3% based on purchase price.

 

[Rockstar]

Well I am a Yardney, a Somers, a Lomas, a Crutchfield, a Zheng and more! Not a Dazz yet though it may happen one day.

Have read 'em all and take snippets of their information/opinions and use what is relevant to my own situation. We are all different in experience, mindset, employment situation, tax brackets, goals, drive, etc. You have to work out your own property path to wealth creation. It's unlikely you will follow one of these gurus exclusively - and you shouldn't if you want to be in control of your investments or developments. Become your own master and develop your own wisdom through your property experiences. I enjoy reading these peoples opinions but never act on most of their advice. Most of them make money out of selling their opinions, strategy and products which can be hazardous for the twinkle eyed newbies with a guru dependant mentality.

 

[Belbo]

Hear, hear Rockstar. Now get back into your bananas!

 

[Thesnowyforest]

Look at what Nathan achieves, then compare to Yardneys way.


I would rather be cash flow positive and retired early than praying/gambling on cg in 10 years time.

Yardneys way i think is ideal maybe if your on approx 100k plus, want to dabble inproperty investment but dont want to get your hands dirty.
When looking at yardneys way and looking at all the costs involved it aint that good.


And he's a bit too car salesman for my liking.

 

[jingo]

Look at what Nathan achieves, then compare to Yardneys way.


I would rather be cash flow positive and retired early than praying/gambling on cg in 10 years time.

Yardneys way i think is ideal maybe if your on approx 100k plus, want to dabble inproperty investment but dont want to get your hands dirty.
When looking at yardneys way and looking at all the costs involved it aint that good.


And he's a bit too car salesman for my liking.

I think there is merit in all strategies. If you had begun using Yardney's strategy 10 years ago and invested in Melbourne, you'd be sitting fairly pretty by now.

I think a combination of strategies is plausible. Then there is the decision to move to commercial property and or shares to really generate a decent income stream.

There is no right or wrong way - just different paths.

Regards Jason.

 

[Dazz]

There is no right or wrong way - just different paths.

I disagree.

A low yielding, low capital growth, plenty of hands on work and high stress level strategy is definitely worse than a high yielding, high growth, hands off low stress strategy.

Both are different, but there is no way you can say the first path is better for anyone over path # 2.

 

[buster]

as DAZZ said the combination of all three is ideal on every property but not always easy to find

getting the portfolio to have all three is much easier.

quick capital growth even on vacant land with a zero yield can provide massive opportunities to create cashflow in other areas.

personally i don't agree with lomas or yardley strategy but combining the two with other strategies can work very well.

good luck

You have to invest where the circumstances dictate at the time. One strategy I have used in the past is to sniff out new developments, usually the developer is nervous and keen to get a sale under the belt and so is his banker. I pay a deposite on a couple of blocks of land with the condition of settlement when building permit is granted, with the option of opting out if the permit is not given within 18 months, inevitably with the obstacles councils throw up it takes more than 2 years. put both on the market before settlement sell which ever one gets the best price. Usually about 10k more than I paid for it. Then build on the other. its not get rich quick, but asset building and pretty much neutral gearing.

 

[MIW]

Cash Flow vs Capital Growth - What's the stategy for you?

I've been reading this site for a few years now, had a PPoR for many years and an IP for 3 years.

Two of the peoples commentary I read are Mr Yardney and Ms Lomas.
I enjoy reading (or viewing) the opinions of both and appreciate what I have been taught, however I cant help but believe that they use fundamentally different strategies.

My gist on Mr Yardney is that a focus on positive cashflow is not such a good idea, its all about buying well located property and having capital growth and improving yields over time.

Ms Lomas appears to be very strong on positive cashflow (I haven't read the recent book yet) and seems to favour lower cost areas with higher yields.

I find myself stuck in the middle, I plan to continue to buy property in more expensive areas for capital growth (i.e. I favour the Yardney method) but I see sense in what Ms Lomas says.

I'd be interested in how others how found the middle ground when developing their own strategy.

It all depends on your final goal what you want to achieve and how you plan to invest. In www.apimagazine.com.au (Australian Property Investor March 2012 Issue 133 on page 23 is a wonderful example comparing positive cash flow startegy vs capital growth strategy (study taken from 'The Property Puzzle' by Stuart Wemyss). Everybody should read that page and then assess what strategy they wish to adopt as it depends on what you want to achive at the end. I have always been the advocate for capital growth as I have a long term view in my mind..... What's yours?

 

[Piston Broke]

Yardney's method is get other to put up the cash and risk and take a fee.
Lomas was a property guru with RE worth a decent Sydney front yard, and Crutchfield knows that cleavage sells as much as BS.
The real question is did and do they make their money with their own real estate or from seminars, books fees and commissions?

As for Dazz's style don't think for an instant that that isn't risky biz, there's a reason banks want 60-70% LVR. In the last 25 yrs I have seen values for com/ind RE fluctuate as much as the banks have during the GFC in % terms.

 

[MIW]

It's the strategy not what the people offer.

Yardney's method is get other to put up the cash and risk and take a fee.
Lomas was a property guru with RE worth a decent Sydney front yard, and Crutchfield knows that cleavage sells as much as BS.
The real question is did and do they make their money with their own real estate or from seminars, books fees and commissions?

As for Dazz's style don't think for an instant that that isn't risky biz, there's a reason banks want 60-70% LVR. In the last 25 yrs I have seen values for com/ind RE fluctuate as much as the banks have during the GFC in % terms.

Hi Piston,

I do not think the poster wishes to invest through either one of them but rather which strategy to adopt in property investing, (cash flow vs capital growth) don't you think?
Anyway, I found both interesting and gained more knowledge from them both but at the end it's up to us which strategy we use. Do you agree with the example on p23 as I mentioned above?

 

[mattnz]

This is why development is good. You sell enough to keep say 1 dwelling which will have little or no debt, will be cashflow positive and growth if you have developed in a "growth" area. It goes against the grain now to buy and hold with a 80% loan...yuk!

Totally agree with this post. It is the holy grail of property investing. Buy land, develop it with 4 townhouses, sell 3 and keep one with no debt.

Advantages:
1. A free townhouse!!
2. Brand new depreciation benefits
3. If you had $1.5 million in expenses and sell 3 townhouses at $500k each, retaining the last worth $500k, you haven't actually made a profit until you sell the last townhouse (according to the ATO at least) .
4. Do this in a high cashflow area and you can achieve $40-50k per annum on your $500k tax free, high depreciation townhouse.
5. Repeat two more times and you are earning over $100k per annum, with a large asset base and no longer need to work.
6. You can borrow against the value of the asset if you wish, no tax payable if you never sell.
7. If you do sell eventually, after 5 years, you don't pay gst on the 4th townhouse and if structured correctly, only pay cgt, not personal income tax.

This strategy borrows a bit from Kiyosaki and from Marty Ayles.

 

[RedPanda]

I'm in the middle too!

I won't buy a property with less than 6% yield. And I wouldn't buy a property in far flung areas with least prospects of Capital Growth.

Everyone is different and not everything works for everyone so devise your own I say.

 

[Piston Broke]

Anyway, I found both interesting and gained more knowledge from them both but at the end it's up to us which strategy we use. Do you agree with the example on p23 as I mentioned above?

I no longer buy API because I think articles like that make no sense to me.
I invest or allocate capital to get a return based on the risk I take not for cashflow or capital gains.
90% of these so called capital gainers lost money or made bugger all last few years (or decade), hence these articles are just cannon fodder for noobs.

Someone buys some RE, a boom comes along and lifts everbody's property values and suddenly they are experts and gurus.
Then they show a few charts and believe that you can base your investment strategy on some silly chart compiled using a bad methodology and dubious data. Just as all those marketers of SEQ did in the early 90s.
If you cant predict the price of BHP from a chart you will not predict property.
And last of all the infrastructure myth. Building infrastructure does not make a property values increase in an area.
This is a bigg load of bullcrappola, but to a noob it sure sounds nice.
Imagine being able to predict the price of BHP in 1 or 5 yrs. It the same thing really.

 

[MIW]

Some are more open to information than others.

I no longer buy API because I think articles like that make no sense to me.
I invest or allocate capital to get a return based on the risk I take not for cashflow or capital gains.
90% of these so called capital gainers lost money or made bugger all last few years (or decade), hence these articles are just cannon fodder for noobs..

I think of property as a long term investment so for me it's at least 30 years or even more, never to sell. You seemed to have a bad experience but for me personally the last 10-12 years have generated over $1mill in equity. I am not sure where the 90% statistic comes from but most would say the last 10-12 years had positive effects on property in Australia.

Someone buys some RE, a boom comes along and lifts everbody's property values and suddenly they are experts and gurus.
Then they show a few charts and believe that you can base your investment strategy on some silly chart compiled using a bad methodology and dubious data. Just as all those marketers of SEQ did in the early 90s.
If you cant predict the price of BHP from a chart you will not predict property.
And last of all the infrastructure myth. Building infrastructure does not make a property values increase in an area.
This is a bigg load of bullcrappola, but to a noob it sure sounds nice.
Imagine being able to predict the price of BHP in 1 or 5 yrs. It the same thing really.

No one is a guru or an expert but some succeed while others don't, don't you think? Well, it's like anything in life so what made the difference? Learing on past bad experiences is the way, and yes no one has a crystal ball so education is the key and I would add a positive mindest too.
Somehow I do not think you even read the article, did you? Well that's up to you but at least I am always open to any new information, how else are we to learn and achive?

 

[colleen_04]

Totally agree with this post. It is the holy grail of property investing. Buy land, develop it with 4 townhouses, sell 3 and keep one with no debt.

Advantages:
1. A free townhouse!!
2. Brand new depreciation benefits
3. If you had $1.5 million in expenses and sell 3 townhouses at $500k each, retaining the last worth $500k, you haven't actually made a profit until you sell the last townhouse (according to the ATO at least) .
4. Do this in a high cashflow area and you can achieve $40-50k per annum on your $500k tax free, high depreciation townhouse.
5. Repeat two more times and you are earning over $100k per annum, with a large asset base and no longer need to work.
6. You can borrow against the value of the asset if you wish, no tax payable if you never sell.
7. If you do sell eventually, after 5 years, you don't pay gst on the 4th townhouse and if structured correctly, only pay cgt, not personal income tax.

This strategy borrows a bit from Kiyosaki and from Marty Ayles.

Ok .. I'm a bit of 'newbie' myself, and reading this makes me very excited.. wish I had the guts, know-how, and $$ to follow through with a strategy like this... one day... soon ... i hope!!