Positive Geared vs Negative Geared

[Fester]

A newsletter I came across from Wise Investment (actually their operation seemed fairly similar to The Investors Club). I must admit I have no positive geared properties, but I have negative geared positive cashflow properties.
Now, am example in this newsletter under heading "cashflow versus capital growth" uses figures similar to positive geared property I have looked at in regional towns and the figures just don't look attractive! People here talk about positive gearing but do you have low cost relatively new property and very high rents to make it worthwhile? Maybe if you got in a couple or more years ago! The example in this newsletter is the sort of figures I was looking at and the returns in the long run are fairly pitiful!

Newsletter here: http://www.wiseinvestment.com.au/htm/files/newsletters/Volume2Edition16June2004.pdf

Regards, Fester

 

[Aceyducey]

Fester,

I keep a close eye on Wise.

Be careful - they have a certain barrow to push (they sell property in SE QLD) and all their articles co-incidentally (and completely independently I'm sure) recommend property in SE QLD!

However their article are good reading within this caveat

Do your own due diligence.

Cheers,

Aceyducey

 

[Fester]

Hi Acey. I have no intention of purchasing anything through Wise, just the newsletter caught my eye!

 

[geoffw]

I had some sort of idea that Wise were a break off from IC- but even if they were, that's not important.

I do agree with the newsletter that people are buying for cashflow only. (Often they are ignoring the fundamenatals of what they are buying, and purchase in small country towns, for instance, with little growth prospects).

But perhaps I missed something (I don't have Excel on this computer).

The newsletter quotes a property being sold at $49,000, returning $120 pw.

So it's in a little town, and a rather poor looking house. I agree that there's probably not a lot of growth .

He says that "allowing $600 pa for repairs and maintenance, and factoring the area's vacancy rate of 7.9%, this property will make a pre tax loss $15 per week".

With pen and paper, just factoring those is $5240 pa.

Factoring in acquisition costs and rates? Did I miscalculate something?

10% acquisition, $500 pa rates, 10% PM fees- still 8.1%?

Not very positive, but not negative.

 

[Brenda Irwin]

Am I missing something or does the house end up costing you nothing?
IE: Rents cover ALL expenses with even a little bit of money left over for you?

If this is on a P&I loan, wouldn't you actually 'own' the house one day in future and it would not have cost you any money from your own pocket? The rents, now free of interest repayments actually become your passive retirement income.

I like those 'free' ones.

 

[Sunfish]

12-18mths ago there were a series of heated debates about RE on Hotcopper. I suggested buying +ve CF in Townsville but was howled down. "Who would buy where there's no cap gain?" Well we have now had 50% increases since, compounding the gains from rental return.

Would Wise have recommended regional property? No.

Making comparisons as they did in this article assumes they can see the future. Having to write the article proves they cant. (They'd be retired wouldn't they?)

Such articles are "indicative" only, not to be taken seriously.

Thommo

 

[geoffw]

Am I missing something or does the house end up costing you nothing?
IE: Rents cover ALL expenses with even a little bit of money left over for you?

My intent was not to open the old cashflow vs cap growth, which has been aired over and over.

My intent was only to question figures which have been put into the newsletter- figures which appear rubbery to me.

Either my own calculations are incorrect, or the newsletter is incorrect.

The second alternative would leave me with some hesitation as to Wise's reliability.