Positive Cash Flow Investment

[Bazza]

Hi All,

I have read Jan's lastest book 'More wealth from residential property' which I thought was excellent and I have just finished 'How to create an income for life' by Margret Lomas which is not as comprehensive but rather focuses on positive cash flow.

I have seen threads on this forum that suggest that positive cash flow is achievable but I am still to see an actually property that comes anywhere near breaking even let alone positive.

Are the special building write-off allowances the only way to achieve this?

What is the selection criteria for such a property?

What is your opinion of Destiny's Positive Cash Flow Investment Register @ www.edestiny.com.au?

Cheers,

Bazza

 

[bundy1964]

Hi Bazza

+ing gearing is harder to get now that there has been a lot of recent CG.

Just how effective depreciation is depends on your personal tax rate, the 48.5% works well for depreciation but sucks when it comes to true +ive gearing.

Most of destiny's properties are retirement village investments. A growing market share but may have poor capital gains due to the income of the target renters and your resale market is limited to investors only.

bundy

 

[Bazza]

Thanks Bundy. I thought there would be some catch to the Destiny deal.

Cheers,

Bazza

 

[bkw319]

Originally posted by Bazza
Thanks Bundy. I thought there would be some catch to the Destiny deal.

Cheers,

Bazza

Bazza, it is important to note that the reference is to the Destiny Property Register.

That is a seperate company to Destiny Financial Solutions which is the financial planning arm.

In fact, you will find that the employees of the Destiny Financial Solutions actually ignore that register altogether as it is full of off the plan units.

It is a seperate company (the register) and I would think a bit of an embarassment to Ms Lomas. She should shelve it as a failed good idea me thinks.

 

[timwr]

Hi Bazza,

There are a few towns I've found which have properties that provide positive cashflow. Try Rockhampton, Ipswich, Gympie and Toowoomba in QLD. not high growth areas but then that's why they provide the positive cashflow.

Timwr

 

[Bazza]

Thanks Timwr. I will check out those areas that you suggested.

I saw the Renos Kings at the Brisbane Property Expo on the weekend and they seemed to suggest that you should think laterally and look at the hidden prosibilities. eg put in a wall to add a bedroom or subdivide the block etc....

What are the main things that you look for to select +CF properties?

Cheers,

Bazza

 

[Peter Parker]

Thanks bkw for pointing out the facts re the Destiny Property Register. I bought the book (Create Income for Life) and downloaded the Finsoft software. I use it all the time - it's worth the price of the book and then some!

I too wondered about the property register. When I looked it was full of high-rises. All were beyond my budget, and it would be about 2020 before I could afford one. And even if anyone would lend me the money, I still wouldn't buy. I think of the huge strata/management levies for the pools and saunas and the likely glut of these sorts of places. All this discouraged me and reduced the opinion I had of the book's author. It's good to be put straight.

If anything, by concentrating on properties that are either 1. unaffordable to most, 2. require big loans, or 3. rely on tax breaks to deliver most benefits, the register discourages those who haven't looked further. Fortunately I did look further and did find a suitable place (high-yielding, well-located, affordable and tenanted).

So I also say 'disregard the property register and do your own research'.

Peter

 

[Les]

G'day Bundy,

You said

Just how effective depreciation is depends on your personal tax rate, the 48.5% works well for depreciation but sucks when it comes to true +ive gearing.

Is that comment REALLY true? (and I'm looking at this from the perspective of an avowed -ve gearer...)

When you have a +ve geared property, isn't it true that you STILL get the same depreciation benefits (non-cash losses) that a -ve gearer will get?? So (let's use an example) you have an IP returning $50/week into your pocket. But, can't you also claim "non-cash losses"?? Depreciation, Building Allowance. And don't they SUBTRACT from the gains you've made being +ve geared??

As I said earlier, I don't have any +ve geared IP's, but do have one or two that are -ve geared with a +ve cashflow (thanks to deprec and Building Allowance). And I've always thought that even +ve geared IP's can claim those same "losses" that -ve gearers claim. If that is NOT so, I'd really like to understand why not......

Regards,

 

[geoffw]

Les,

I'm now in the situation where -ve has turned +ve (six years on).

That really sucks now- I received benefits a few years ago, but I'm getting hit for the profits now.

In the short run, it enabled me to move more quickly in IPS than otherwise- but in the long run, I'll end up paiyng ATO more. (which I guess is why they allow negative gearing anyway).

The ideal situation would have been a hybrid trust- but I don't know if they existed way back then- and even then, I would have baulked ast the extra expense and paperwork.

 

[bundy1964]

Hi Les

I meant when after tax breaks and your on the highest bracket profits are taxed at the highest level when u go into +ive teritory.

bundy

 

[brains]

Bazza

Its actually possible to find pos. geared property with decent capital growth. (10% +).

You just have to look hard (theyre out there) or do the reno thing and buy under market, do a cost effective reno and rent to a level that will allow pos. or neutral geared.


Theres lots of ways to do it, you might have to think outside the square a bit.

 

[Bazza]

Hi Guys,

Thanks for all your good comments. I’m trying to come to terms with the concepts of positive cash flow vs positive gearing and people seem to get these confused all the time. Are my following definitions correct? Can you add more to clarify the issues?

Negative Gearing
The process of writing off the losses incurred on a government approved investment against other income resulting in less tax being paid. The rent is not enough to cover the expenses so you lose money.

Positive Gearing
Similar to Negative Gearing but the income on the property is more than the expenses and the result is that you make money on the investment. There are two ways to do this:

1. High Yield - A property with a higher then usual rental return for the purchase price. (0.1 – 0.11% is normal. 0.175% or higher is good. Such a return is difficult to find.
2. Contribute a Cash Deposit – this gives you a positive return but not a good idea as returns on the deposit are low – better to borrow the full amount plus costs.

Positive Cash Flow
Positive Cash Flow property provides all of the benefits of Negative Gearing without costing you money from your pocket each week. It can occur on a property where the loss is mostly on paper. With a large on paper deduction the property can take a loss and push it into a profit.

1. On paper losses – special building write-off allows the costs of construction plus furniture, fixtures and fittings to be depreciated. You get tax back on items without paying money out.

Positive Cash Flow is different to Positive Gearing as the extra money made is not subject to tax – it is an after tax amount. Positive Cash Flow can provide an effective hedge against inflation, rising interest rates and low occupancy. Plus it allows an investor to leverage, from one investment to the next, at a greater rate.

Cheers,

Bazza

 

[Les]

G'day Bazza,

Sounds pretty good to me - maybe it can be a little more succinct by saying:-

Negative geared - expenses exceed income
Positive geared - income exceeds expenses

Positive cashflow - is the After Tax result of EITHER a -ve or +ve geared investment. Of course, a +ve geared investment will ALWAYS have +ve cashflow, but a -ve geared investment may(or may not) have a positive cashflow.......

It sounds to me like you have a pretty good handle on it anyway (and THAT is what's important, yes?)

Regards,

 

[geoffw]

I'm trying an approach to increase cashflow which is common in Canberra, but much less common in Queanbeyan.

I have a block of 8+1, 1BR units. Based on the purchase price six months ago, the are cashflow positive anyway- but I could not do it now with the price of 1BR units having gone up by 25% (Cuased by demand from cashflow positive investors perhaps?).

The first unit has become vacant. It is in reasonable condition, and comes with some furnishings- bed, table, bar fridge, microwave, washing machine- and there's BIR's and storage (there were chairs, lounge and a coffee table, but they were tatty so are going).

They're due to be let out at $110- but PM has suggested to let it out as fully furnished. They're managing some 2BR FF units- but 1BRs are rare, and we're interested to determine the demand. The demand for the 2BRs has been high.

2BR ff in Canberra fetch $400+, so we think there may be a market for students, especially for defence personnel.

The link is on http://allhomes.com.au/c/ah?a=spr&p=14323 - and yes, I have told the agent it is a 1BR, NOT a 1BR studio.

I've bought a 51cm TV, small hifi, DVD, VCR, chairs, coffee table and a new lounge. Total cost was about $2,200- we're going for an extra $40pw rent.

(I do know Jan does not like furnished- it's a gamble. But for $2K I'm willing to give it a go- if it works, I multiply by 8. If it doesn't- I get a better TV than I have in my own place. Unless it's trashed.)