Neutral Gearing

[WebBoard]

From: Suzanne Inc


Hi all,

I'm new to the investing game. I have
bought 1 house (in Melb), so I have some
negative gearing happening.

But now I'm scheming about how to get
more IP's without cramping my lifestyle
too much. So I was wondering if neutral
gearing is really possible or just pipe
dream? What type of properties should I
be looking at?

Any advise please?

Suzanne

 

[Robert]

Reply: 1
From: Robert Forward


Neutral gearing is possible, even positive gearing is possible.

Today alone I've found a 10% return property in a good area in a capital city.

Plus I found 4 units priced at $139k, all in one complex, in the inner city of Sydney that were returning 9.1%.....

Cheers,
Robert

Get your Property Inspection Reports @
http://www.CreativeFinance.com.au

 

[WebBoard]

Reply: 2
From: Mark Petterwood


Hi,

Neutral, positive or negative gearing - the real issue is what do you want to achieve through investing in property.

I know that I want to achieve a passive income that grows along with assets that also grow.

A trap that many fall into is to buy positive geared property that is in a low capital growth area. This is fine but how many of these do you need to give a reasonable passive income?

The ideal property is one that is in a high growth area that is also positive geared. You can achieve this, but it usually will take some time of negative gearing before the rent rises enough to outstrip your costs.

Remember rent usually has a direct relationship with the value of the property. As the property goes up the rent should eventually follow.

If your properties aren't going up in value then you will have to keep putting in cash to increase your equity to thus buy more properties.


Regards



Mark

 

[WebBoard]

Reply: 2.1
From: M O N T O


This might sound very ignorant, please pardon me. How can a deal be neutrally geared, should it be either positive or negative? For a deal to be neutrally geared, all the expenses added up would equal the income (rent), isn't this mathematically challenging, especially at the time prior to making the deal?
For example, before you purchase do you workout all the expenses to be $3000, interest on the loan to be $12000 and using the formula 15000/365*7 to workout the rent to be 287.67, then minus the agent fees if applicable...
I am also confused a bit with the idea of negative gear with positive cash flow, is it a result of depreciation? Could someone plug some numbers to give an example please?
Oops, I am off the topic...
Cheers

 

[Owen]

Reply: 2.1.1
From: Owen .


Neutral gearing is not an exact science. You are right in saying that it's mathematically impossible to get the numbers to match. The general theory is to own an IP that doesn't cost any money and doesn't earn any money either - give or take a few dollars.

It depends on your goals really. If you want to reduce your current tax burden then negative gear, if you want income and are prepared to pay tax then positive gear, if you want a balance then work the numbers to neutrally gear. It also easier over a portfolio rather than a single IP because then you can have a mixture of properties with a mixture of income, losses and capital growth.

Negative geared but positive income means the you are losing money day to day but after the depreciation benefits are calculated at tax time, you receive a return that means overall you have earned money.

Loan $100k @ 7% = $7000pa in interest
Rent @ $120 * 52 = $6240pa income
Loss = $760pa
Tax return at 48% = $365
Depreciation say $600
Total refund $965
Profit after tax = $205pa

Something like that anyway.

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"

 

[khurram]

Reply: 1.1
From: Khurram Saeed


Hi Robert
These deals in Sydney, and the returns you talk about are excellent...how do you find these deals? Are they the normal off the mill deals or are you doing something special like wrapping to get such high returns...and they are obviously residential right? Not commercial....just wondering how do you acheive both capital gains and high rental yeild...well done.
Khurram
P.S) I thought getting both was a Myth...but obvisouly not. how? Please explain...

 

[Robert]

Reply: 1.1.1
From: Robert Forward


Hi Khurram

These are normal residential deals that I found from searching real estate websites, which are a regular occurances. I actually have to admit though, that my partner Tracey found the units in Sydney though....

Cheers,
Robert

Get your Property Inspection Reports @
http://www.CreativeFinance.com.au

 

[GoAnna!]

Reply: 2.1.1.1
From: GoAnna !


Or perhaps a cash income each month but a paper loss?


GoAnna !
"To the man who only has a hammer in the toolkit, every problem looks like a nail."
-Abraham Maslow