I am still coming to terms with both sides of this fence.
I have already established that a negative cashflow property can be positively geared after non-cash deductions (depreciation) are taken into account.
For the sake of argument and comparing apples to apples, the comparison of positive and negative situations needs to be made on a fully funded investment. We all know we can make any negative cashflow property positive cashflow by throwing in enough deposit.
The positive cashflow proponents suggest PC is great because you earn money from day one. That's fine, I happen to agree to that.
The negative cashflow proponents suggest you get the Taxman to pay off [part of] your property. But this is a case of spending $1 to make back 50 cents, which no matter way one looks at it, is pretty dumb in itself.
I have read Steve McKnight's web site where he says negative gearing is paying out today in the hope of earning capital growth in the future. I agree that makes good logical sense.
But does anyone have any examples where reasonable property (eg. any capital city) has not risen in value by an appreciable level over an extended period of 15+ years? Actually, does anyone have long term median property growth figures for capital cities?
Therefore, is Steve McKnight's principle more fearmongering that reality? (I ask this question with the greatest respect for Steve).
There is no doubt negative gearing relies on positive capital growth.
One thing which has become apparent to me is that to evaluate the numbers for a negatively geared property, one cannot be so negatively geared that you have no chance of beating capital growth.
Obviously the lower your expectation of capital growth, the smaller the "holding cost" must be for you to ever come out ahead.
The above might a dumb comment, but I guess I have been searching for some way of knowing whether a negative deal property is even close to possibly being a winner.
Onto another topic, elsewhere on this forum was a good comment concerning cashflow positive properties which asks the question "Why someone would choose to pay more in rent than buying the place themselves?".
Apart from the obvious difference in loan structure (IO for investments using P&I for PPOR), I think this is a very good question.
How do we arise at this situation where someone is prepared to willingly spend more money in rent than buying the place? Are we talking a particular demographic. Is the real estate which gives us this better or worse to other real estate. The Cap Growth implications? Desirability?
A friend of mine the other day purchased a unit but he said to me in all likelihood he will pull out whilst these is still a reasonable yield, because he thinks the only purchaser likely to purchase this unit will be another investor, and the numbers still need to look attractive to the next purchaser in order that he can sell easily. Does this bear any realistic consideration (this was 48-unit development with Body Corporate and swimming pool).
Thanks in advance for your views.
Kevin.
I have already established that a negative cashflow property can be positively geared after non-cash deductions (depreciation) are taken into account.
For the sake of argument and comparing apples to apples, the comparison of positive and negative situations needs to be made on a fully funded investment. We all know we can make any negative cashflow property positive cashflow by throwing in enough deposit.
The positive cashflow proponents suggest PC is great because you earn money from day one. That's fine, I happen to agree to that.
The negative cashflow proponents suggest you get the Taxman to pay off [part of] your property. But this is a case of spending $1 to make back 50 cents, which no matter way one looks at it, is pretty dumb in itself.
I have read Steve McKnight's web site where he says negative gearing is paying out today in the hope of earning capital growth in the future. I agree that makes good logical sense.
But does anyone have any examples where reasonable property (eg. any capital city) has not risen in value by an appreciable level over an extended period of 15+ years? Actually, does anyone have long term median property growth figures for capital cities?
Therefore, is Steve McKnight's principle more fearmongering that reality? (I ask this question with the greatest respect for Steve).
There is no doubt negative gearing relies on positive capital growth.
One thing which has become apparent to me is that to evaluate the numbers for a negatively geared property, one cannot be so negatively geared that you have no chance of beating capital growth.
Obviously the lower your expectation of capital growth, the smaller the "holding cost" must be for you to ever come out ahead.
The above might a dumb comment, but I guess I have been searching for some way of knowing whether a negative deal property is even close to possibly being a winner.
Onto another topic, elsewhere on this forum was a good comment concerning cashflow positive properties which asks the question "Why someone would choose to pay more in rent than buying the place themselves?".
Apart from the obvious difference in loan structure (IO for investments using P&I for PPOR), I think this is a very good question.
How do we arise at this situation where someone is prepared to willingly spend more money in rent than buying the place? Are we talking a particular demographic. Is the real estate which gives us this better or worse to other real estate. The Cap Growth implications? Desirability?
A friend of mine the other day purchased a unit but he said to me in all likelihood he will pull out whilst these is still a reasonable yield, because he thinks the only purchaser likely to purchase this unit will be another investor, and the numbers still need to look attractive to the next purchaser in order that he can sell easily. Does this bear any realistic consideration (this was 48-unit development with Body Corporate and swimming pool).
Thanks in advance for your views.
Kevin.
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