Stats: 74% of Property Investores Are Low-Med Income Earners

[hobo-jo]

The $100p/w is what you personally invest into the acquisition of the asset (after all holding costs) - same as you would buying a weekly parcel of shares, or a super contribution, or a bank account, etc.

At the end of the day, $100 still comes out of your pocket to "buy" an asset.

The capital is still invested in the asset after the tax has been returned to you.

I don't know how to make this any clearer.

The situation you described is where an investor is negatively geared to the tune of $100 per week (the only way he is going to be able to claim back the tax). He is out of pocket $100 per week to hold the property as the interest cost exceeds the rent. By the very nature of being negatively geared that $100 is going to the interest expense of the loan, it's not "after holding costs", it's not still invested in the asset and it's not the same as putting $100 into the bank or buying shares (outright).

 

[BayView]

I don't know how to make this any clearer.

The situation you described is where an investor is negatively geared to the tune of $100 per week (the only way he is going to be able to claim back the tax). He is out of pocket $100 per week to hold the property as the interest cost exceeds the rent. By the very nature of being negatively geared that $100 is going to the interest expense of the loan, it's not "after holding costs", it's not still invested in the asset and it's not the same as putting $100 into the bank or buying shares (outright).

It is.

In every case, you have Joe Bloggs putting $100 aside for his wealth creation each week into some type of investing vehicle. Everyone on earth has to do this to kick-off their wealth creation at some point...they have to put money aside for investing with. The only decision is which vehicle to throw it into.

You keep adding "yeah, but..." There is no need to look any further than what he physically puts in versus what comes back.

What comes back is a further $2600 he would never have got, and at the end of 20 years (as a figure) he has an asset worth probably 3 or so times what he paid for it.

How is this bad when at the end of 12 months his $100 per week in ING has returned him $260 approx Before tax, and he has not received $2600 in returned tax which the property would have? He is $2,860 worse off

Should he buy a property that costs him $100 per week? Of course not if he can buy one that returns him a pos cashflow instead.

But, many can't do it; they buy one that costs them some outlay each week. Is this bad? No, because in the end they will own a property which can lead to more (increased equity and further leverage), or some other form of investment. It is a worthwhile weekly expenditure when viewed this way.

At the end of the day, he still owns his shares parcel, he still owns his super contributions, or he still owns (is buying) the property.

You are viewing his $100 from his pocket for the property as an extra expense he has lost; as a bad thing. It isn't, and he hasn't lost it. It's going towards his purchase of the asset. He is spending $100 on investing.

It's like saying to him "give me $100 per week, and this will buy you a property, or "give me $100 per week, and this will buy you shares" and so on.

I guess we'll have to just agree to disagree on this one.

 

[Angel]

OK, we are definitely on two totally different wavelinks.

From Agent007's post, the Joe Blogs earning minimal wages are not "investors" like the guys and ladies here who have serious portfolios.

I am a Joe Blogs, hence the demographic comment. My goals and aspirations are miles away from yours. We will never ever be thinking or acting on the same plateau. However my goals and aspirations are still valid to the ATO and the economists who will be pleased when this very rare kind of a Joe Blogs does not lie back and apply for welfare when we are no longer fit enough to perform our day jobs. To us, accruing a million dollars in assets by the time we want to retire is going to be a struggle, but it is worth the sacrifices and risks to try to get there. Some of you may laugh at our daring to try, but then there are plenty of others to cheer and applaud a bit of get up and go.

As for the underlined bit of Bayview's post, yes, I agree with it. We are currently in that situation. Except my tax deduction is 15%, not 30%, but hey, I still look to the big picture. Where will we be in ten years from now? On a beach somewhere in Paradise, I expect. I am investing, for want of a better word, for Capital Growth. O no, I must be a fool. It is going to work out better than spending $300 a week at the RSL or on car payments, as the rest of the Joe Blogs would be doing.

I guess we are arguing over semantics. Negative gearing and negative cashflow mean the same thing to Joe Blogs. I see that both of you are correct. One is talking in generalisations and the other in strict economic terms. Now can we all live happily ever after.

 

[hobo-jo]

You keep adding "yeah, but..." There is no need to look any further than what he physically puts in versus what comes back.

It's not "yeah, but..." you are posting mathematically/factually incorrect information and I have pointed it out.

What comes back is a further $2600 he would never have got, and at the end of 20 years (as a figure) he has an asset worth probably 3 or so times what he paid for it.

Look back at your post on page 2. You specifically state:

"Even if someone owned a property for 3 years and saw no rent or cap growth increases in that time"

You are now changing the scenario by saying that he has an asset which has seen capital growth.

Perhaps you misspoke on page 2 and if so we can both agree you were wrong earlier in the thread and move on.

 

[JIT]

Having a PPOR and a few RIPs is OK, whether negatively or positively geared.

But either is unlikely to set most people financially free.

So after a handful of RIPs, you need to look at alternative strategies and approaches, rather than lock yourself into one type of investment asset class.

And do this sooner rather than later.

 

[locko24]

It's not "yeah, but..." you are posting mathematically/factually incorrect information and I have pointed it out.

You're correct jo.

The only reason to negatively gear, is that one is expecting CG.
Bayview's above example is akin to throwing $2600 down the toilet each year (after tax).

 

[Alex P Keaton]

Do you mean the Nikolena topic?

http://somersoft.com/forums/showthread.php?t=58651

 

[investor2009]

I'm a huge fan of negative gearing (Why?) it gives me an extra 20% income per year! My equity has always (wel.. almost!) risen and don't pay taxes on LOE or if I do not sell. I don't pay tax on my LOC's because they're not classed a sincome so my money near doubles for that very reason (if never sold..) Or it can be deferred for later.
Remember this: Kerry Packer had a taxable income of just $25,000 in the one year I know of.. And he was doing alright I hear Or would it have been smarter for him to pay tax on all his earnings? I think we all know the answer there.

Lets make a really small time scenario here: Say I have a job where I earn $50,000 gross p/a and have a property that MAKES $2,000 a year profit, before any tax deductions and before paying tax on those earnings. Good for me! Now lets say I earn $50,000 gross p/a and I have a property that LOSES $2,000 a year BEFORE tax. It has a depreciation report that has $4,000 deductions per year (Yes, Robert Kiyosaki calls it "the phantom cashflow" Funny name, cool product), plus I also claim the $2,000 lost in cashflow. 31.5% (yes, because I'm such a pov I can only claim that much) of that = $2,000p/a, so it's CF neutral (for now) and I only need let time do it's thing as I watch rents rise and the loan eventually turns to principal and interest repayments and shrinks down over time. I may have even made 7% on it that year, which being such a lousy income earner would have probably been somewhere around the $30,000 mark. I'm not taxed on that and decided to buy another property with the profits. My scenario then doubles for next year, and then again and again.

Pretty basic stuff really I would have thought but horses for courses, right?
Bad thing might be serviceability so you ight wanna chuch some cashflow things in there too. Speak with a professional.

 

[HotRod]

NG does not give you an extra 20% income. It reduces your losses by 20% or whatever you marginal rate is.

There are differences between PIs who use NG.

There are the ones like you that will buy new properties and with the depreciation report and NGing will hold a property at no cost. This is CF neutral.

There are others that will buy a property and NG it to reduce their tax. I have known people who have reduced their rent to keep a property NGed to keep on reducing tax. This is CF-.

Either of these strategies would have worked in the past with property in a never ending upward spiral, but in the past 4 years and maybe the next 4 as well property will be more likely to track sideways.

In either scenario, you have to keep working to pay for living expenses and continue to do so until such time as you portfolio has increased in value enough (or rents) to sell off or live off the rents. NG PI will also hit a ceiling very quickly and won't be able to by many properties.

It takes some persistence to keep on paying for something (or not is CF neutral) that is effectively giving no returns. You are hoping and praying that the market goes up. Past performance suggests this will continue to be the case, but no one can be sure.

 

[Indifference]

I'll start by questioning the definition of "property investor". If it means (which I think it's the case here), that holding an investment property makes you a "property investor' then, I'm sorry but, I don't think that it is a right and fair definition and hence the problem/confusion. IMO, a property investor is different to a individual that holds a single residential rental property. Yes, I agree that such a property holder is a resi property investor for tax purposes but, nothing else
When you look closely to the numbers, you will find that only a minimum % have more than 5 investment properties. Again, IMO it is only after about 5 that the title of property investors starts to make sense.
So, what do you think?

I think you don't really know what you are talking about..... please let me explain.

Quantity of properties is not really the most effective measure as 1 can be more than 5...... wait...... yes I can count & I know 5 is a larger number than 1, BUT, 5 x $100k properties is not greater in capital terms than, 1 x $750k property......or what about 1 x $1.2M.

Additionally, investing is not just about capital..... what about cashflow? What about debt to equity ratio... etc...

So, the number of properties is a relatively arbitrary & niave measure that in no way indicates the value of the portfolio. Another example: Am I a share investor if I own 5 shares? What a joke right... 5 shares. Huh! BUT, what if they are 5 x Berkshire Hathaway Class A shares (current value/cost $120K each)? Maybe now the interpretation is vastly different to 5 shares that could otherwise be valued at $1 each....


Perhaps a better measure would be portfolio value, which is more akin to what is used in other asset classes.

 

[hobo-jo]

Perhaps a better measure would be portfolio value, which is more akin to what is used in other asset classes.

And even then the value might need to be relative to the income of the individual. For example controlling a single $300k property might not be worthy of mention for some, but it could be a reasonable achievement for a part time working parent or someone on minimum wage.