Park Trent and negative gearing

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From: Damian O'Neill


Hi Folks,
A company named Park Trent investments recently contacted us re PI opportunitiess. On setting an appointment time, my wife mentioned that we have just sold our house and intended buying negatively geared IP/s with the proceeds, i.e. not buying a principle place of residence, but renting for 2-3 years while she completes studies. The Park Trent representative told my wife that only people with 20% equity in their principle place of residence were eligible to negatively gear investment properties. Hoping that someone would be so kind as to answer:
1. Is this bollocks?
2. who is Park Trent Investments?
Ta,
Damian
 
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Reply: 1
From: Ian Findlay


Hi Damian,

To answer your question - its bollocks.
Negative gearing uses your tax, which has nothing to do with your residence
whether renting or owner-occupied. How does the taxman know how much you owe
or the %age on your residence? Its not listed on the tax return.

I'd steer very clear of any so called professional giving that advice.

Ian

PS Welcome to the world of property investing. In this forum you'll find a
world of information as well as many experts (I'm not one I'm afraid) such
as TW, Michael Croft, Rolf etc etc who can give real advice.

----- Original Message -----
From: "propertyforum Listmanager" <listmanager@bne003w.webcentral.com.au>
To: <Recipients of 'propertyforum' suppressed>
Sent: Wednesday, June 13, 2001 8:40 AM
Subject: Park Trent and negative gearing


> From: "Damian O'Neill" <kandoneill@ozemail.com.au>
>
> Hi Folks,
> A company named Park Trent investments recently contacted us re PI
opportunitiess. On setting an appointment time, my wife mentioned that we
have just sold our house and intended buying negatively geared IP/s with the
proceeds, i.e. not buying a principle place of residence, but renting for
2-3 years while she completes studies. The Park Trent representative told my
wife that only people with 20% equity in their principle place of residence
were eligible to negatively gear investment properties. Hoping that someone
would be so kind as to answer:
> 1. Is this bollocks?
> 2. who is Park Trent Investments?
> Ta,
> Damian
>
>
>
> To reply: mailto:propertyforum.5184@bne003w.webcentral.com.au
> To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
> To login: http://bne003w.webcentral.com.au:80/~wb013
>
 
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Reply: 1.1
From: Damian O'Neill


Ian,
Thanks for the post and warm welcome. I've never heard of any such requirements re Neg gearing, but I thought I'd come here for a reality check.
Rgds,
Damian
 
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Reply: 1.1.1
From: Paul Zagoridis


20% equity is required by some promoters because a financier won't touch their deals unless your residence secures it.

The cost of the IP is normally inflated to cover their commissions and marketing costs.

One good test of promoters (and most negative geared IP's) is to ask if the deal would stand alone. Ask how much cash deposit you'd need to without additional security.

Dreamspinner
 
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Damian - a question for you.

Reply: 1.1.2
From: Damian O'Neill


Hi Michael,
When you couch the question in those terms, it does sound lame. However, most available PI literature is based on that idea, and unless all of the authors are BSing us, this pays off, eventually, if applied correctly.
Having said that, I'm currently reading John Burley's "Seven Steps" book which promotes positive cash flow and questions NG. Given that he isn't BSing us either, his system has worked for him, also.
It appears that opposing ideas achieve the same result in the end. Could it be that both philosophies will see investors in a similar situation in 3, 5, 10 years time?
Are there any comparative studies available?
Rgds,
Damian

On 6/13/01 10:20:00 AM, Michael Croft wrote:
>Hi Damian and welcome.
>
>Why would you buy an asset
>that loses money when the
>object of investing is to make
>money?
>
>Neg. gearing = going backwards
>in dollar terms. A loss = a
>loss no matter how much the
>tax man attempts to consol you
>by giving part of your losses
>back.
>
>Presumably you will be
>speculating on capital gains
>to assure you wealth, but it
>is still speculation aka
>gambling. Yes I know you can
>minimise the risk, but ask a
>neg gearer to guarantee your
>growth if you follow their
>advice.
>
>There are positively geared
>properties or cash flow
>positive properties available
>that will get the capital
>growth required for wealth
>creation. It's just a matter
>of looking with eyes that see.
>
>Michael Croft
 
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Damian - a question for you.

Reply: 1.1.3
From: Owen .


I just read a quick paragraph or 2 of one of Nick Rentons property investment books in the local shop and what I read is relevant to this conversation.

He said (paraphrased) that if negative gearing is so good and you happen to be unlucky enough to have an income producing IP, just ask the tenants to pay less rent so it starts losing money for you.

Absurd.
 
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Damian - a question for you.

Reply: 1.1.3.1
From: Damian O'Neill


Cash flow +ve?
If I buy an IP for $200K, financed with 100% my own money, this would be cash flow positive, right? Though I don't think anyone is suggesting this.

In terms of the above, does anyone have a definition of a cashflow +ve IP?
 
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Damian - a question for you.

Reply: 1.1.3.1.1
From: Paul Zagoridis


Your example of 100% cash purchase is cashflow positive. And yes you are right that that is not the normal suggestion.

We generally say a property is cashflow positive when there is money left in your pocket after paying the normal expenses of the property. This includes interest on borrowings, but not any extrordinary or unusual expenses (e.g. special levies or uninsured damage). This implies customary LVR's on the property.

Paying a 20% deposit (80% LVR) will turn a marginally negative deal positive. As will rent increases due to refurb or time.

There are wonderful deals where we borrow 100% of the purchase price plus all transaction costs and the rent still leaves a profit.

Time should eventually turn all deals positive cashflow.

Dreamspinner
 
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Re: Damian - a question for you.

Reply: 1.1.3.1.2
From: Terry Avery


Yes search the forum and you will find discussions on this.
 
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Re: Damian - a question for you.

Reply: 1.1.3.2
From: Terry Avery


I love the quote Owen, well done.

Terry
 
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