Great, can you explain how it helps? I honestly would like to know. I thought it's just a seminar RAH RAH stunt?
can anyone become wealthy using Peter Spann
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Peter this summarises what I have known for a long term.
A beginning investor can make money in residential property because of financial leverage (borrowing), adding value by sweat equity etc. And we all need a principal place of residence so we are in familiar territory. I think this a reasonable place to start investing.
But beyond a certain point there is a law of diminishing returns when you have numerous investment properties. You are effectively running a business with all the associated risks & management problems. And buying and selling properties is very lumpy cashflow. In my case I would not be buying investment properties after $1M net equity, its stocks from then on.
With stocks your strategy is to write covered calls for leverage, you can employ numerous strategies and dont have to rely on your bank manager. Do you find it a better use of you time & less stressful?
It is a rah rah stunt - however, for some people, I believe it forms the metaphors necessary eg. Board Break might symbolically mean:
- breaking through mental barriers (for the procrastinators)
- doing something you are afraid to do (will it hurt? - can apply physically/financially)
Cheers,
The Y-man
Try putting a real arrow with a real steel tip against your throat, and get someone to hold the other end, then walk forward until the arrow either pierces your throat or breaks in two.
I still have the two pieces of arrow somewhere
.Bloody scary - like your first time jumping off the 15 metre diving tower at the pool.
Made me rush out and buy 3 properties unconditional on 45 day settlements, without finance organised. (not really)
So Peter what your saying is we property investors are doing it all wrong and it is a very slow way of getting wealthy or financially independent.
What would you suggest for people who are not sure about managed funds and shares.. Just buy hold and pray for long term capital growth.
I am interested in using shares as part of the wealth building excercise but don't know enough about franked dividends and why they are good tax advantage can you explain more.
Thanks for the information.
What would you suggest for people who are not sure about managed funds and shares.. Just buy hold and pray for long term capital growth.
I am interested in using shares as part of the wealth building excercise but don't know enough about franked dividends and why they are good tax advantage can you explain more.
Thanks for the information.
He (and I for that matter) is saying that RE needs lots of cashlfow.
Without cash income you will grow, but slowly.
RE is generally bought at a loss with the hope of CG in the future.
If it takes 10yrs for an IP to become CF+, then how long before you make a decent income?
Some people think buy many IPs they will eventually be CF+, but in the mean time the are losing large amount of cash.
When credit is easy many buy to live the dream.
But when credit gets tight, they may not be able to afford them.
If they lose their job (or biz goes bad) they up the creek with no paddle.
And last but not least, it's equity that generates cashflow and wealth.
Loans are an expense, there's no such thing as a good loan (unless you think expenses are good).
Without cash income you will grow, but slowly.
RE is generally bought at a loss with the hope of CG in the future.
If it takes 10yrs for an IP to become CF+, then how long before you make a decent income?
Some people think buy many IPs they will eventually be CF+, but in the mean time the are losing large amount of cash.
When credit is easy many buy to live the dream.
But when credit gets tight, they may not be able to afford them.
If they lose their job (or biz goes bad) they up the creek with no paddle.
And last but not least, it's equity that generates cashflow and wealth.
Loans are an expense, there's no such thing as a good loan (unless you think expenses are good).
Well, yes and no. At the beginning I don't think it makes a lot of difference. Property probably has the edge for most people because they believe they are familiar with it and therefore potentially good at investing in it. Studies show this not to be true but a bit of self confidence goes a long way in making investing decisions.
Plus the performance edge of shares doesn’t really have the time to kick in. Indeed the benefits of the share market are probably not utilized by the novice as much as the benefits of property.
However in the long term and if it is a question of developing considerable wealth then yes, I believe that shares are the most optimal investment methodology of doing that.
I would suggest the same thing I would to a novice property investor – start learning! And buy some shares of companies you like or units in a managed fund managed by a pro who you like. Getting in (at least in a small way to start) is always the best way of learning. Nothing is preventing a committed property investor from diversifying into equities by way of shares or managed funds and they might just learn something! I did.
Put simply franked dividends are distributions of profit from a company upon which part or all of the company tax is already paid. You get the benefit of that tax (franking credits) for your own tax payment. If your tax rate is above the company tax rate you get to claim all of the franking credits (like a tax deduction) and just need to make up the difference. If your tax rate is below the company tax rate you can claim back the tax already paid. In a combination with a property investment strategy this can have a lot of advantages for investors.
Do you have any idea why RK was SO anti fully franked dividends during his seminar? Was I missing something? Did you understand his point? I sure didn't and I like to think I'm not a dummy.
No – I was not present during that particular section.
With respect to Robert, it was clear that he and his “advisers” did not understand nor make any effort to understand the Australian market and they made broad sweeping statements that I believe were at best naive and at worst simply wrong (in particular their statements about Superannuation – I was literally horrified when they told people to pull their money out of Super – the consequences of that in Australia (as distinct from a 401k in the US) are extreme and possibly illegal).
The US does not have franking credits so I can only guess they just don't understand.
There may be many arguments for and against investing in shares but I cannot see too many disadvantages to franking credits in and of themselves.
Peter,
Do you think there's much chance that dividend imputation will be removed as part of the current review of taxation? I gather Australia and NZ are about the only two countries in the world that have it.
And if it was to be removed, how do you think that would affect the investment landscape in Australia? Would share investing become less popular, perhaps in favour of property investment?
Thanks.
GP
Do you think there's much chance that dividend imputation will be removed as part of the current review of taxation? I gather Australia and NZ are about the only two countries in the world that have it.
And if it was to be removed, how do you think that would affect the investment landscape in Australia? Would share investing become less popular, perhaps in favour of property investment?
Thanks.
GP
Good question – few people in Oz realize the two massive investment concessions (incentives) we have that are out of step with the rest of the world are negative gearing and dividend imputation.
Remembering that the tax review is “only” a series of recommendations to Government, these two things almost certainly have to be up for discussion.
Removing either will be met with voter resistance (ala Keating when he tried to remove negative gearing), but in reality, excluding the electoral consequences, removal of negative gearing makes more sense. Negative gearing has little positive economic benefit past the initial stimulation of the acquisition, the few people who maintain the properties, maybe some renovations, and the profits made by banks on the ongoing interest, but it does have a social benefit of providing rental accommodation.
The issue with negative gearing as it applies to property is that, like in business, interest is supposed to be a cost input to generate income. Now businesses are allowed to lose money from time to time as well so the argument goes that “property” should be allowed to lose money too. But most people actually don’t invest in property with the sole intent or ability to generate income. Most people generate losses and even when cash flow grows to a point where there would be profits generally use equity to continue adding to their portfolio so continue to produce losses.
Negative gearing (especially in terms of applying it to property investing) favours the middle class and to a lesser extent the rich (as they have far less, as a percentage, of their assets tied up in investment property). So it is in fact sound socialist policy to remove it.
Removing dividend imputation would have a negative effect on the economy as encouraging people to invest in companies stimulates growth, job creation, production and exports. In the current economic environment I believe it would have far greater negative impact then removing negative gearing.
So as an economic rationalist I believe that there is a sound case to retain dividend imputation and remove negative gearing but I also believe it would be a brave government to tackle either in the current electoral climate.
Remembering that the tax review is “only” a series of recommendations to Government, these two things almost certainly have to be up for discussion.
Removing either will be met with voter resistance (ala Keating when he tried to remove negative gearing), but in reality, excluding the electoral consequences, removal of negative gearing makes more sense. Negative gearing has little positive economic benefit past the initial stimulation of the acquisition, the few people who maintain the properties, maybe some renovations, and the profits made by banks on the ongoing interest, but it does have a social benefit of providing rental accommodation.
The issue with negative gearing as it applies to property is that, like in business, interest is supposed to be a cost input to generate income. Now businesses are allowed to lose money from time to time as well so the argument goes that “property” should be allowed to lose money too. But most people actually don’t invest in property with the sole intent or ability to generate income. Most people generate losses and even when cash flow grows to a point where there would be profits generally use equity to continue adding to their portfolio so continue to produce losses.
Negative gearing (especially in terms of applying it to property investing) favours the middle class and to a lesser extent the rich (as they have far less, as a percentage, of their assets tied up in investment property). So it is in fact sound socialist policy to remove it.
Removing dividend imputation would have a negative effect on the economy as encouraging people to invest in companies stimulates growth, job creation, production and exports. In the current economic environment I believe it would have far greater negative impact then removing negative gearing.
So as an economic rationalist I believe that there is a sound case to retain dividend imputation and remove negative gearing but I also believe it would be a brave government to tackle either in the current electoral climate.
Aaahh Yeah. Just like it had been since the dawn of time, until they introduced umputation a while back. Gee, I forget how young you are, sometimes. You missed out on all the fun of tax double dipping, the removal of negative gearing (briefly), 18%+ interest rates .. the list goes on ...
Plenty of time for all that to happen again in my lifetime Rob.
Seems weird we're the only country (+NZ) that has imputation.
So for someone on a marginal tax rate of 30% receiving dividends of $1 where it's fully franked, the company has paid 30c tax and he will have to pay 30c again. So from that $1 profit, the govt. take 60c.
I understand, but the current system just seems to make more sense. Oh well, what will be will be.
Seems weird we're the only country (+NZ) that has imputation.
So for someone on a marginal tax rate of 30% receiving dividends of $1 where it's fully franked, the company has paid 30c tax and he will have to pay 30c again. So from that $1 profit, the govt. take 60c.
I understand, but the current system just seems to make more sense. Oh well, what will be will be.
It would be a bit less than 60c Steve as the second 30% comes off a smaller number but you have got the idea...
"Most" other developed countries have lower personal marginal tax rates which makes all these shenanigans rather irrelevant. If there was no difference between personal (above a circa $20k threshold), corporate and super tax rates everything would be a lot easier. That way you could abolish -ve gearing (which would hardly be attractive at that rate) as well as dividend imputation and the swag of rebates / handouts / middle class welfare that we have now. High income earners could hardly complain about lower marginal tax rates could they?
Any difference in revenue for the govt could be gained from a simple carbon tax rather than the CPRS mess we are looking at now. Alongside that we could also abolish the GST to keep retail prices down but provide the carbon incentive. The existing GST accounting systems would work very well for a carbon tax instead if they wanted to go that way.
This way we would have a tax system people could actually understand! However I don't know what we would do with the massive queues of unemployed tax accountants and ATO employees that would result!
Keep it Simple! Unfortunately the likelihood of any government completing such a level of reform is pretty much zero...
Looking back, sorry I'm way off topic here but the complexity of our tax system is a big bug bear of mine. Back to the thread...
Yes, just like with property investment income.
When you receive rent from a normal residential tenant, they pay from their after-tax income and you don't get a credit for the tax they've already paid.
Imagine if tenants had to maintain a franking account for passing on tax credits to landlords. What a paperwork nightmare - I'm surprised accountants haven't been pushing for it!
GP
You may use any benchmark you like for your own personal comparison but it's benchmark is it's benchmark so further debate is redundant.
I may very well have underperformed a host of other indexes and comparisons but it will also have outperformed a host of other indexes and comparisons as well. A benchmark is only meaningful if it is consistently used for the same comparison.
But FXI is not a pure buy write fund so your comparison is meaningless. If you are genuinely doing this then you should find a genuine buy write fund to compare.
