Is negative gearing out of fashion?

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Reply: 3.1.2.2.1.1.1.3.1.1.1.1.1.1
From: Sergey Golovin


P Plate,
Please, check for wraps, flips, lease options, etc. in archives - "Property Investor Archive" and also "Apprentice Millionaire Guide". Mike did great job there. Or simply do search for all those words under “Search” section.



Sorry Kristine,

Thanks for that info. It was mentioned that Initial Outlay was $1,000. It is relatively small outlay for such big amount of borrowings. What sort deposit is that? How did they do that? Did they use any equities from other properties or is it something else. Could you explain please, I must’ve missed somewhere something down track.

Serge.

 

[Kristine..]

Reply: 3.1.2.2.1.1.1.3.1.1.1.1.1.1.1
From: Kristine .


Hi Serge

To analyse a property impartially, that is, to analyse the deal, and not the circumstances of the person making the deal, the PIA is very useful because it is not emotive and is strictly number crunching.

If a purchaser wanted to use eg 10% deposit,or 50% deposit, the bottom line would be very different. Also if the interest rate was higher or lower, the loan repayments included principal, or the income tax rate of the borrower; all these variables will affect the outcome.

It is for these reasons I model on the smallest possible investment. I have done some examples using $1 deposit, but the PIA simply shows rows of ???? for the IRR and for the "%" returns.

However, one major lender is quite happy to lend 105% ie the full price of (this) deal, provided, of course, that the borrower meets usual serviceability requirements, has a stable employment history and can show a reasonable amount of equity in another property.

Most purchasers are fairly conservative, and have one eye on the possible rainy day. However, it would be reasonable to assume that any one contemplating a deal such as the penthouse would have some business or property experience and would certainly have some other assets.

Glad you enjoyed the example, it's fun using the PIA and the results are always interesting.

Cheers

Kristine

And by the way, the lease is held by a corporate tenant - hence paying all property outgoings, body corporate, insurance, and the owner only paying the relatively small amounts (council & water rates)as listed in the example

 

[aam]

Reply: 3.1.1.1.1.1.2.1.1.1.1.1.2.1.1.1.1.2
From: Apprentice Millionaire


Hi Kevin,

Excellent post!

>Deductions should always be seen as the icing on the cake and not included in the
>overall calculations. The reason you do this is in case (God forbid) something stops
>your ability to earn and you're on the dole, the amount able to be claimed by
>deductions would reduced significantly. So deductions should not be used for your
>ROI or IRR calculations. I notice a lot of 2-3 tier marketers use deductions to
>hide the true cost to the purchaser.

That's why I am now laughing when 2 tier marketers come and do their spiel with me: I have no income that the banks will consider (self employed, need to build 2 years worth of tax returns). So when the marketers come out with their spreadsheets and programs, and the deductions are nil, the real costs and the real losses appear!

Cheers
Apprentice Millionaire

 

[Les]

Reply: 3.1.2.2.1.1.1.3.1.1.1.1.1.1.1.1
From: Les .



G'day Kristine,

You succeeded in getting the PIA into the forum - Well Done !! I found the whole exercise very educational.

Not sure that I am ready to have a go at one of those, though - my brain goes into overload when prices head North of $300k (must be my Brisbane background ;^)


Interesting and valid comments by Terry A, too. It is easy (as a newbie) to get caught up in the "Tax Benefits" side of things - but, should your income dry up, those Benefits disappear very quickly, and leave a $250+ per week alligator instead of a $25 / week -ve geared Capital Growth gentle giant.

Thanks for the "down to earth" comments, Terry - always good to get a "both feet on the ground" perspective. And thanks to Kevin, too, who also contributed from the same perspective. It was very educational to see the same picture from two such diametrically opposed angles - well done, all. (Was that good English?? Sounded pretty swish to me ;^)

Regards,

Les


" Eschew obfuscation " ;^)

 

[karsal]

Reply: 3.1.2.2.1.1.1.3.1.1.1.1.1.1.1.1.1
From: Sam Vannutini


Hello everyone.
Finally a chance to sit down and reply.
Thanks for the encouragement. I hope that my successes do inspire some of you to carry on regardles of the obstacles thatlife throws at you.
I can see people's reluctance on neg gearing. You must understand that IP's are not my main source of cashflow. I use shares and options for this. IP's that grow in value provide me with the equity to invest in shares. The reason that i'm not a big fan of wraps is that for it to return 305+, I would have to gear at 90%. Frankly, I hate banks and mortgage insurance. It is far easier for me to get a margin loan with no questions asked and generate the same if not better returns from shares.
For this to happen, I focus on property for capital growth. This is acheived by renovations, and buying in good areas.
So, as you can see, my strategies do differ somewhat from the norm. unfortunately it is difficult to find this kind of property at a price that will be positive geared.
Another thing that I am looking into are lease options. This way I can gain control of a property with little money down, fix it up, revalue, exercise and draw the equity.
Whilst I'm at it, does anyone out there have anything to do with sourcing my prefered type of property in Brisbane??
I am looking to fly up soon and purchase, as Melbourne is out of control.
Please email direct.

Kindest regards,
Sam.

 

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Reply: 3.1.2.2.1.1.1.3.1.1.1.1.1.1.1.1.1.1
From: Lu Pechenick


Sam,
You say that you invest in shares for income...how do you feel about shares now that Wall St is about to come crumbling down?
Jan says that shares are usually heavily geared in the first place and are not a good place to put your money. Others have called the US share market a financial bubble that can burst at any time and it seems imminent.
Any comments?