Positive strategy



From: Rob Millington

I am keen to get some feed back from the people who use the +ve geared strategy for property investment.

The properties I have seen that work positively are in areas of little Capital growth.

I am in a position to buy 2-3 of these at the moment but will then have to sit for a while.

Is the strategy based around sitting on these properties until average rents in the area increase (I understand that properties can be improved in the short term with value adding but these are in existing or ex. housing trust/commission suburbs). Buying and selling in the short and medium term might become costly with the small gains in these areas.

Regards Rob.M
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Reply: 1
From: Paul Zagoridis

Hi Rob

I can't speak for others but I bought my first positive property in 1999 in Kings Cross. It's appreciated about 277% in that time. Yes I bought well.

Positive property #2 bought in Qld (not telling where ;-) for about 10K below market. Turned it into a wrap.

#3 in Qld is a another wrap.

And #4 is in Vic settled in June - don't know and don't care about capital gain. It's under an option that may never be exercised. But if exercised I pocket $24K.

I've just sold the last of my negative geared properties. I had a stack of them in 1988-1992 but the bank sold those during the recession we had to have.

I don't normally buy them with capital gain in mind. I see them as oil wells pumping a barrel of oil each week. Each barrel is not much but taken together it adds up. They should maintain value against inflation as a bottom line.

I'm struggling to find bargains at this point in the property cycle but I keep looking. A wrecked terrace sold at auction in Bondi Junction for $710K this week. Way too hot.

Transaction cost will eat you if you trade housing commission stock. But Mt Druitt in western sydney had a 30% rise in housing commission stock this year. So you never know.

Paul Zag
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Reply: 1.1
From: Jakk Bass - The SLUM LORD

Hi Rob,

Nowadays I only buy properties that have a positive cashflow or ones that can be turned into a positive cashflow situation.
As Paul wrote in his post "..I see them as oil wells pumping a barrel of oil each week. Each barrel is not much but taken together it adds up..." Never a truer word spoken.

You wrote...
>The properties I have seen that work positively are in areas of little Capital growth.

On my calculation
positive cashflow + little capital growth = profit without dipping into your pocket.

If you had 10 of these, a nice little earner.
If you had a hundred of these, you are sitting pretty.

Look outside the square, find properties that you can turn into positive cashflow ones. Sometimes a coat of paint, some new floor coverings and some louvre curtains can justify a rental increase of 20% or more.
Know your area of investment intimately.
There is a great sense of achievement felt when you buy a property that others have passed up and you can turn it around and achieve a greater return than anyone could have imagined.
...and don't forget, areas of little capital growth today, could be the ones that surprise everyone with massive gains in years to come.
Do your research, then do it again, trust your instincts, get advice and above all else, make low offers.
But first, as I said before, know your area of investment intimately.


Tarzan comes home pooped and says to Jane "It's a jungle out there."
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Reply: 2
From: Michael G


I've bought a couple of properties and wrapped then in rural NSW. My capital gain/income stream is set up when I bought/sold each property.

These areas have very little gain, but that's not the point of a wrap anyway. Its to generate cashflow.

Bought for $39k sold for $67k. Mind you this was via a Dept of Housing auction with no reserve.

I guess another idea is find a house with a big block in an area of fibro/clad homes and see if its possible to wheel in and dump another property onto the block. This may then produce TWO income streams from the site.

Later on if growth has been good you can always cart the property off again and develop the block?

Basically, its rare that anyone is going to come up and hand you a +ve geared growth property. You really have to make them or look really hard.

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Reply: 2.1
From: Rob Millington

Thanks Paul, Michael and Jakk. I appreciate the time and detail of your replies. I will continue to read your numerous postings and apply what you have suggested here.
For me 10 properties seems a distant hope but I suppose you all had to also buy your 1st IPs.
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From: Anonymous

Very interesting to see the tide moving away from negative gearing.
My thoghts are that it does depend on your income situation. Personally, I generate my cash from shares and options. Therefore buy and hold proerties in proven growth ares are ideal as asource of equity gain which can later be used in other areas. I have some wraps underway, but will eventually need to decide how much realised income I am prepared to pay tax on. On the other hand, any capital growth will not be taxed unless I sell.
This side of the equation needs to be taken into consideration as well (no oil pun!).
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