From: Kevin Frey
Hello,
I'm two thirds through Jan Somer's book "More Wealth from Residential Property" and trying to acquire as much knowledge as possible about investment properties with the hope of "stepping out" soon and purchasing my first IP.
Jan seems to advocate the negative gearing approach in a lot of her examples. Then I find www.propertyinvesting.com which says don't touch negative gearing because it works on the assumption of growth compensating for your shortfall.
I think the guy from the above web-site advocates getting cashflow positive properties, but they would appear to be inordinately difficult to find, or are we talking country areas here? Of course, he is heavily into wraps which are by definition cash-flow positive, so could that be his reason for being "negative" towards negative gearing?
In very very simple terms it seems to me that the rental income of a property must at least equal the interest charged on the loan, and then some, for the property to be cashflow positive, wouldn't it?
But that (hence my question) got me thinking whether you can negatively gear such that the tax refund exceeds the cash loss, presumably through having a new property and claiming depreciation.
This would occur, I guess, whenever depreciation exceeds the cash loss (at the highest marginal rate at least). So if my cash expenses for the prop. are $10K per year and income is $8K per year, I face a $2k per year shortfall. But if I can claim $2K in depreciation, I claim a $4K tax deduction of which I get back virtually half ($2K), which negates my "real" cash shortfall.
Is this possible in practice?
I know depreciation is not a free lunch because the fact depreciation is allowed means wear-and-tear is real and I will inevitably have maintenance costs, but is the concept fair?
How many investors on this forum rely on negative gearing versus positive gearing?
Kevin.
Hello,
I'm two thirds through Jan Somer's book "More Wealth from Residential Property" and trying to acquire as much knowledge as possible about investment properties with the hope of "stepping out" soon and purchasing my first IP.
Jan seems to advocate the negative gearing approach in a lot of her examples. Then I find www.propertyinvesting.com which says don't touch negative gearing because it works on the assumption of growth compensating for your shortfall.
I think the guy from the above web-site advocates getting cashflow positive properties, but they would appear to be inordinately difficult to find, or are we talking country areas here? Of course, he is heavily into wraps which are by definition cash-flow positive, so could that be his reason for being "negative" towards negative gearing?
In very very simple terms it seems to me that the rental income of a property must at least equal the interest charged on the loan, and then some, for the property to be cashflow positive, wouldn't it?
But that (hence my question) got me thinking whether you can negatively gear such that the tax refund exceeds the cash loss, presumably through having a new property and claiming depreciation.
This would occur, I guess, whenever depreciation exceeds the cash loss (at the highest marginal rate at least). So if my cash expenses for the prop. are $10K per year and income is $8K per year, I face a $2k per year shortfall. But if I can claim $2K in depreciation, I claim a $4K tax deduction of which I get back virtually half ($2K), which negates my "real" cash shortfall.
Is this possible in practice?
I know depreciation is not a free lunch because the fact depreciation is allowed means wear-and-tear is real and I will inevitably have maintenance costs, but is the concept fair?
How many investors on this forum rely on negative gearing versus positive gearing?
Kevin.
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