Investing cross roads

[EsplanFreedom]

Hi all,

I am feeling that negative gearing isn’t working for me anymore. It worked for me when I started, as I was extremely motivated, obsessed and didn’t mind going without and not travelling. As much as I don’t want to sell an IP I feel that my negatively geared portfolio is stopping me from being who I want to be and how I want my life. But in saying this, I started investing in property to give me choices and future freedom.

Did you come to a cross roads in your life where you found what was supposed to improve your life actually restricted you? What did you do? Would love to hear your stories.

Thanks

 

[Zeddy]

I'm not in your shoes as two out of my three investment properties are almost cashflow neutral. I'm assuming that you are negatively geared AND cashflow negative.

If you were saying you don't want to DECREASE your quality of life further, but want to continue investing, I'd say start looking at consolidating your portfolio or look at neutral/positive cashflow properties.

If you are saying your quality of life is too restrictive currently, then that's a bit more of a pickle.

How about you post some numbers?

 

[Peter_Tersteeg]

I'd say at this point you need to start actively planning your investment strategy.

Most people I meet purchase properties here or there because the believe the purchase represents good value. They go into aquisition mode until they can aquire no further. They then stop for a while, then when things improve, aquire again. More likely than not they build up some equity over the long term, sell a few assets and are modestly wealthy.

The truly successful people purchase strategically. They don't care about what property they buy except that it's got to fit the numbers and projections they require. They understand how this purchase will effect them financially and have figured out what it will mean to the next and subsiquent aquisitions, and what those aquisitions should look like. They understand what the risks to their longer term strategy are and how to mitigate them.

These people understand where they are, where they're going, and have a series of dots between the two. They match the property (or any other investment) to the plan, not the other way around.

 

[vaughan]

I'm assuming that you are negatively geared AND cashflow negative.

I don't understand that comment.

cashflow negative = loss
offset loss from property against other income = negative gearing

I guess you could be cashflow negative but choose NOT to negative gear? But you could not negative gear without being cashflow negative otherwise you'd not have a loss.

Please explain, my head is hurting.

 

[Zeddy]

cashflow negative = loss
offset loss from property against other income = negative gearing

Depreciation. Say for example your rental income breaks even with your expenses. Now treat your depreciation as a loss (but obviously not a real out of pocket cash expense). With your tax benefit, the property is now cashflow positive while remaining negatively geared.

 

[Zeddy]

The above is what I use to pull my properties over the line from cashflow neutral to slightly positive.

Also note the cashflow for my properties were high to begin with.

It's not a be all and end all, but every little bit does help.

 

[Dazz]

I am feeling that negative gearing isn’t working for me anymore. It worked for me when I started, as I was extremely motivated, obsessed and didn’t mind going without and not travelling. As much as I don’t want to sell an IP I feel that my negatively geared portfolio is stopping me from being who I want to be and how I want my life. But in saying this, I started investing in property to give me choices and future freedom.

Exactly !!! You start out thinking, "I'm going to buy a few of these, set myself up, and then these things will 'look after me'.....what a clever little sausage I am".

A couple of years down the track, depending on how much free cashflow your job enables you to throw at them, you accumulate a few and find yourself with a few dead albatross around your neck, where you constantly feel like you are pumping all of your spare cash and time and stress into these deflated albatross...thinking..."so when are these supposed to actually look after me ??"

If you don't eventually call a halt to the gaggle of dead weight around your neck, your friendly Bank taps you on the shoulder and says, "frankly, I think that's enough dead weight around your neck for now, you're going purple around the gills, how about you call it quits for now and try and get back on your feet."

The little investor inside, spurned on by all those magnificent networking seminars and stories regaled of past real estate conquests spurs you on "NO !! Lump another one on, I can still breathe a little, I'm not that purple around the face am I ?? I'll pull a double shift, I'll give up Xmas, I'll put the kids in an orphanage, just please please please allow me to carry another albatross dead weight around my neck....they'll grow wings soon and all will be good. Trust me"

Did you come to a cross roads in your life where you found what was supposed to improve your life actually restricted you?

Yes....May 2004....I finally realised that even with my large international contracting personal income, breathing extreme amounts of fresh oxygen into my investing system, it took only 7 heavy albatross slung aroung my neck to choke me completely.

What did you do?

I got rid of the heaviest dead albatross, vowed never again to buy a dead albatross, and started buying eagles that actually lifted me up.

The eagles were what I envisioned at the start of my investing career....but just didn't know what an eagle actually looked like. I'd grown up with dead albatrosses, only knew about dead albatrosses, and all of my friends / family / associates only ever bought dead albatrosses.

I just wasn't smart enough to realise what an eagle was, so I did what everyone else around me did, load myself with dead albratoss and hoped it allowed me to soar with the eagles.

It never did.

It clearly still doesn't....as you've now discovered.

 

[vaughan]

Dazz: that's poetry, that is.

Great post.

 

[Aaron_C]

There comes a point in every investor's life where they reach their peak serviceability. When that happens, your debt tends to take up a lot of your income and you start to miss out on enjoying the fruits of your investing (if you've done well).

However, PT_Bear's comment is very prudent - you have to plan your investing and if you think that plan is going awry, you need to re-assess how you've done as an investor, and maybe work out what your next step should be to either a) improve your quality of life, or b) how to earn more income.

 

[redwing]

Exactly !!! You start out thinking, "I'm going to buy a few of these, set myself up, and then these things will 'look after me'.....what a clever little sausage I am".

A couple of years down the track, depending on how much free cashflow your job enables you to throw at them, you accumulate a few and find yourself with a few dead albatross around your neck, where you constantly feel like you are pumping all of your spare cash and time and stress into these deflated albatross...thinking..."so when are these supposed to actually look after me ??"

If you don't eventually call a halt to the gaggle of dead weight around your neck, your friendly Bank taps you on the shoulder and says, "frankly, I think that's enough dead weight around your neck for now, you're going purple around the gills, how about you call it quits for now and try and get back on your feet."

The little investor inside, spurned on by all those magnificent networking seminars and stories regaled of past real estate conquests spurs you on "NO !! Lump another one on, I can still breathe a little, I'm not that purple around the face am I ?? I'll pull a double shift, I'll give up Xmas, I'll put the kids in an orphanage, just please please please allow me to carry another albatross dead weight around my neck....they'll grow wings soon and all will be good. Trust me"

Yes....May 2004....I finally realised that even with my large international contracting personal income, breathing extreme amounts of fresh oxygen into my investing system, it took only 7 heavy albatross slung aroung my neck to choke me completely.

I got rid of the heaviest dead albatross, vowed never again to buy a dead albatross, and started buying eagles that actually lifted me up.

The eagles were what I envisioned at the start of my investing career....but just didn't know what an eagle actually looked like. I'd grown up with dead albatrosses, only knew about dead albatrosses, and all of my friends / family / associates only ever bought dead albatrosses.

I just wasn't smart enough to realise what an eagle was, so I did what everyone else around me did, load myself with dead albratoss and hoped it allowed me to soar with the eagles.

It never did.

It clearly still doesn't....as you've now discovered.

What's the solution for the starting investor, how do you catch an eagle?

Dead albratosses are much easier to catch, though you can only carry a few before you just get plain tuckered out

There's always the simple life...

 

[cu@thetop]

please please allow me to carry another albatross .

Do you get wafers with it?

 

[Dazz]

Dead albratosses are much easier to catch, though you can only carry a few before you just get plain tuckered out

Yes they are, and yes you do.


I reckon it's almost impossible to catch an eagle straight away.


All you ever see are albatross everywhere when starting out. Have a read on this forum, people are dragging albatross around with them all the time.


How many times do you hear on the street or on this forum people say "Oh, we rent our place, I know it's far more expensive to do that than own it, but we like it and it's expensive to shift, so we'll stay for the long term." Never.


You always hear them state - "We love it here, the rent is reasonable, and we get to live in an amazing suburb that we couldn't possibly afford if we owned it. The Landlord is nice, he fixes things for us all the time and even mows the lawns. We like him alot."


Bzzzzzz !!!! Winner - one albatross coming right up.

What's the solution for the starting investor, how do you catch an eagle?

I honestly don't think they can be seen to start out with, let alone caught.

You need to put your albatross goggles on, and feel the deadweight around your neck to bring them into focus.

You need to feel the pain in your shoulders for a few years, to experience the "what do you mean you can't come with us to Jenny's party, who cares about the Tenant's stupid leaky ceiling, which one is more important ??"

You need to review the accounts at the end of the year. One line item - rent in, vs a list as long as your arm of expenses out....a list as long as your leg of expenses out if you have a PM and wanna go to Jenny's party.

In short, I don't think there is a solution Redwing, especially for the starting investor...

 

[Dawn]

So the option is to get a dead albatross and pray for some Capital gains enough to buy a little eagle?

Or start out buying some chickens and sell their eggs, but how to get the equity to buy those chickens?

 

[Dazz]

Well, I suppose the traditional way to get some seed equity is to get off your @$$ earlier than most people, work harder than most people, go back home exhausted after most people, earn more than most people THEN control yourself and spend less than most people.

That last bit is where most folks fall down all the time.

That very small amount left over from all of the above is the magic cement dust to lay your foundation, before attempting to build your skyscraper.

 

[Deltaberry]

I don't understand that comment.

cashflow negative = loss
offset loss from property against other income = negative gearing

I guess you could be cashflow negative but choose NOT to negative gear? But you could not negative gear without being cashflow negative otherwise you'd not have a loss.

Please explain, my head is hurting.

You only get to offset other income because you are making a loss in the first place.

Hence negative gearing = loss, or at least in most cases.

However it is possible to produce an "accounting loss" via depreciation but actually be cashflow positive (ie cashflow profitable). Although two things to note:

a) You are still making a loss in reality because at some point the D&A will require capex
b) Even if you disregard the real loss, your cashflow profit is most likely limited since it's obviously very marginal if you can on the one hand be negatively geared yet have positive cashflow

 

[Deltaberry]

What's the solution for the starting investor, how do you catch an eagle?

Dead albratosses are much easier to catch, though you can only carry a few before you just get plain tuckered out

There's always the simple life...

If Dazz or anyone here who has eagles told you, you'd all flock out to buy it. And those eagles would soon turn to dead albratosses by forces of supply and demand.

 

[sash]

OK boys please refrain from taking LSD or other psychodelic drugs!

This talk of Albatrosses and Eagles has me very seriously worried about your collective mental states!

 

[redwing]

Well, I suppose the traditional way to get some seed equity is to get off your @$$ earlier than most people, work harder than most people, go back home exhausted after most people, earn more than most people THEN control yourself and spend less than most people.

That last bit is where most folks fall down all the time.

That very small amount left over from all of the above is the magic cement dust to lay your foundation, before attempting to build your skyscraper.

Too true Daz,

I use an anology at work that if somone wants to progress within the company they have to get off the couch and take a step forward, if they sit on the couch waiting for something to come to them, they are competing with eighty or more other couch-sitters

Hence the photo's of Mr Simpson, maybe I should throw in a well known Aussie also

 

[redwing]

If Dazz or anyone here who has eagles told you, you'd all flock out to buy it. And those eagles would soon turn to dead albratosses by forces of supply and demand.

Eagles are expensive and flightly suckers though, it's like the anology of eating an elephant....you get there by taking one bite at a time.

I'm sure many have progressed to that stage over time, others are quietly working at it and others have greater cash resources available to jump in now

I'm sure many of us have no chance of flocking off and buying an eagle

The investing achievements celebrated by anyone on here, no matter the size, do much to re-enforce my resolve, as do the lessons learned

I acknowledge much of what Dazz says and the point..

In short, I don't think there is a solution Redwing, especially for the starting investor...

I was driving the other day and someone gave me the bird, it was neither an eagle nor an albatross though

 

[Dazz]

I was driving the other day and someone gave me the bird, it was neither an eagle nor an albatross though

Aot of people don't want to look like a goose, so never get to experience the weight of the albatross....perhaps they are the clever ones ??