Do you?

[want2bewealthy]

In reading Robert Kiyosaki's book 'Retire Young, Retire Rich'
I enjoyed the first quarter, but I've now stopped reading.

He frowned upon 'Australians' investing for capital growth, rather than cash-flow and I quote, said it is 'stupid' and cannot understand the mentality, he also says it's the 'slow' and uncertain' way of getting rich.

He also contradicts himself by saying that Property capital gains is 0% tax money, the best of all and added that depreciation was 'the phantom cash-flow'

I've always invested for capital gains, 0% tax money and will always continue to do so as long as the rental return covers most or all expenses.

 

[Rob Williams]

I vote Both. I've reached a point in my investment lifecycle where cash flow is becoming more important. I've always been focussed on CG. Now I realise that some positive cash flow is needed in the mix to sustain investment in the CG deals.
Helen Collier-Kogtevs book (47 Biggest Mistakes ..) makes this point in a compelling way.

 

[Nathan]

W2BW

The thing you need to remember is AUS and US tax laws are different.

He is correct saying negative gearing is stupid, hoping for a gain, i never got it either. only time id wanna be negative is if im holding a nice dev site and its taking time for d/a etc to come through...

Id rather invest for $50 cf+ today and plan that that will be $150pw cf+ in 5 years time, and any capitall gain is good but not just hoping / holding out for it costing urself $200pw.

 

[Dazz]

For us it's dictated mainly by who is willing to stump up the money. They usually get a big say.

 

[JamesGG]

I do agree with Kiyosaki in the belief that buying with the 'hope' of long-term capital gains is not investing. At risk of being branded; in very simple terms, I see it as speculation.

Passive investments with negative or nil returns wherein the change in value is purely reliant on the market, don't make a great deal of sense to me. I can appreciate that buying on a trend has potential for creating some easy capital growth; although simply buying something (quality or otherwise) for the sake of buying as soon as one can afford to, is dangerous.

Active investments with potential for creating value, or, investments with higher yields, make much more sense to me.

Same reasons apply to why I don't usually buy long-term shares that aren't returning a dividend. Even more so if we're talking about buying those with borrowed money.

 

[steveadl]

I buy property for capital growth. I have a business which makes any cashflow increases from property look like a rounding error, plus also in the process of building an equities portfolio for cashflow down the track (although focusing on both CG & CF in the current beautiful market environment).

Having said that, the properties you buy for capital growth cost less each year with rental growth which is a nice bonus.

FWIW W2BW, I still find the RichDad books interesting, even if I haven't found them overly useful with the nuts and bolts. Which reminds me, need to pop over to A&R for something new...

PS I didn't answer the poll as I'm not sure whether you're referring to just property or all investments?

 

[Dazz]

I'm not sure whether you're referring to just property or all investments?

Hi Steve,


Most questions on this forum tend to lean towards houses / flats and units. That's a small subset of property. All other investments (businesses / bonds / shares / all other property etc) are naturally assumed to be excluded from discussion, unless otherwise stated.


Says so in the Forum rule book under category 4 (f) sub-category (iii) part (b).

 

[Perp]

He frowned upon 'Australians' investing for capital growth, rather than cash-flow and I quote, said it is 'stupid' and cannot understand the mentality, he also says it's the 'slow' and uncertain' way of getting rich.

The vast majority of US investors that I've talked to either: 1) Don't believe that we really do invest in negative cashflow properties, or 2) Agree with Kiyosaki that we're exhibiting mass insanity in accepting that this is an "investment".

I think that - as is usually the case when people make extreme statements, or use words like "never" and "always" - that the truth lies somewhere in the middle.

A negatively geared property may be a good investment, if you are confident it will become CF+, or have solid reasons to believe that you can manufacture growth, or that market growth will be much better than your mortgage interest rate. But "buying anything to reduce your tax bill and hoping it will work out in the long run" is crazy, and I can only hope that the current environment - where capital growth is low/nil/negative - demonstrates the potential pitfalls of such an approach.

This contrasts between investor attitudes between the two countries reminds me, yet again, how few beliefs are universal.

Things which most Somersofters would think are reasonable assumptions, would, to a group of similarly educated and experienced US investors, seem absolutely ridiculous, and vice-versa.

It's up to you to sort out what your risk profile is, educate yourself, and determine what's an appropriate strategy for the niche that you choose to play in.

 

[BayView]

In reading Robert Kiyosaki's book 'Retire Young, Retire Rich'
I enjoyed the first quarter, but I've now stopped reading.

He frowned upon 'Australians' investing for capital growth, rather than cash-flow and I quote, said it is 'stupid' and cannot understand the mentality, he also says it's the 'slow' and uncertain' way of getting rich.

He also contradicts himself by saying that Property capital gains is 0% tax money, the best of all and added that depreciation was 'the phantom cash-flow'

I've always invested for capital gains, 0% tax money and will always continue to do so as long as the rental return covers most or all expenses.

I voted both.

And, we always invest for cashflow first, cap growth second - as per R.K.

He does contradict himself a bit as you say, but his concepts are what I took in, and I agree you need the cashflow. Cap growth won't pay any bills unless you use it.

We have been lucky (not really; you make your own luck I believe) to have good cap growth as well with our investing.

It seems blatantly obvious to me that you are investing to replace your income as soon as possible and retire younger and richer, hence cashflow, "phantom cashflow" must be an improtant factor.

Having great cap growth and no income is no fun, and I have been there and done that. Learned very quickly.

It's ok if you are a very high earner, have plenty of expendable income to throw at a neg geared investment or three, but most people aren't in that bracket. So cashflow has to figure into the equation.

Keep reading R.K's books; they can change your life.

In 2000, we were a married couple on barely average incomes with no prospect of becoming rich anytime soon. We owned our house though.

Now, 9 years later, we have an IP portfolio worth approx $2mill, and two businesses (one still to settle in 2 months or so) which combined will replace our average incomes by a few times and we are free of PAYE drudgery forever.

$2 mill in property might sound spectacular to some, but I assure you it is not - the nett cashflow off it isn't enough to retire on - you have to sell a good whack of it to clear some debt to get that.

All we've done is just applied R.K's tips, didn't go gung-ho at it either. I'm no rocket scientist for sure.

Admittedly, not everyone will want to go down the 'businesses' path - just opting for shares and/or property is what most will do, but it is another way to accelerate the results.

Thanks R.K, Jan, Marg, Noel, John and others.

 

[Chris.R_WA]

Hi Steve,


Most questions on this forum tend to lean towards houses / flats and units. That's a small subset of property. All other investments (businesses / bonds / shares / all other property etc) are naturally assumed to be excluded from discussion, unless otherwise stated.

Woops...I'll have to change my answer then!

I answered with respect to my total investment portfolio, which is intended to cover both CF and CG requirements....residential IP's are one part of the whole.

Rgds, Chris

 

[battler]

$2 mill in property might sound spectacular to some, but I assure you it is not - the nett cashflow off it isn't enough to retire on - you have to sell a good whack of it to clear some debt to get that.

Which reduces your income earning potential, as you end up with less properties that are available to be rented.

 

[BayView]

Most questions on this forum tend to lean towards houses / flats and units. That's a small subset of property.

Small subset?

Is that referring to volume or dollar value?

If volume, I would have to disagree - far more residents than businesses I'd say.

If dollar value; you may be right.

 

[rugrat]

I am inclined to aim for both and have answered that in the poll. Having said that I am willing to trade-off for slower capital growth but higher cashflow in the long term, if it comes down to it. But that is because I am one of those people who plan to use rental income as a replacement for job income - I don't really ever intend on selling if I can help it. Capital growth is still important though, Firstly for equity, so I can buy more IP's. But also because if the time comes where I do want to resell for whatever reason, I want to at least be able to cover my costs that I incurred with purchasing and reselling, and prefer to make a profit on that as well if possible - that is only sensible.

 

[fokas]

Helen Collier-Kogtevs book (47 Biggest Mistakes ..) makes this point in a compelling way.

So Robert's book - no.
Helen's book - yes.

Thanks guys!

 

[want2bewealthy]

Yes I concur Bayview.

I have just about started selling my product for my first small buisness so am really looking forward to that.

My aim is to be financially free within 2 years, and I'm trying my hardest to do so, the business should support my investments and living.

Although its not a massive amount of money, I'm still living the life I want and my financial position will only improve as time goes on.

While were here, does anybody remember the cover story on 'Simon' in YIP a few months ago?

What an inspiration. I must admit that his story has spurred me on like no other yet.

Retired after 2 years of investing and branching off into the things he WANTED to do.

I have good plans for the future and am actively working towards them.

 

[Learnings]

I think there is no Right or Wrong way.

Depends on what your trying to acheave.

I voted CG.

Its like asking "Whats the best investment class"

There is no answer, only options

 

[craigb]

Their is no rules in this game! except for have a flexible game plan, being able to build/renovate on to an existing property allows me to gain about 100k this will take 6 months of so, adding value, the Ip is then positive geared, and one must ask how many years of $100 positive cash flow will it take to equal $100k
So being flexable in the jeorney is somtimes the key, this allows you also to use those gains for bigger and better opertunitys,
But if your limited in the value adding abbilities, and your earning a nice income and pay a whole lot of tax dollers, the choice is simple you either pay tax to the gov or off set it against a vechle that gains in value, as NATHEN said the tax laws are different here in Australia.

 

[our obsession]

Actually that is a trickier question(s) than it looks W2BW.

I've gone both, but it is also the deal. It's sort of a little of this and that.

For us there has been buying for solid return, to keep in the game and for cashflow, even though I'm not able to predict capital growth we have had it, and the other factor in our shopping has been buying well.

Interesting.

 

[Xenia]

I would have voted both but that makes is a tougher market. If you are looking for both the market is more limited.

I have used creative strategies, lease options, multi-let accomodations, to create positive cashflow on high yield properties that would have otherwise negative cashflow but that property needs to fit the strategy and strategies work better in given market conditions.

I voted depends on the deal.

I would not overlook a development site because it will be negative cash flow, $1000,000 landing in your bank account as a LOC after refinancing a completed development site is not a deal to overlook becuase of the interim cashflow situation.

I am currently looking at a no money down positive cash flow deal that has come across my desk. None of my own money and cash from day one is also a great deal and worth looking at even if there will be no capital appreciation, well at least I'm not factoring anything in for this one and if there is it will be a bonus.

 

[HandyAndy888]

I voted CG, but after reading Rob W's comment, I think perhaps I should have said both. For me, CG is the "driver" for investing and CF is/can be an enabler to achieve higher amounts of growth.

CF only would be awesome, but the amount of cash needed to make this happen in a short amount of time (i.e. 10-15 years) is unlikely. Rents, especially during the last 7 years, haven't moved anywhere near enough to make a 10% mortgage (average over 50 years) cf+.