What I have learnt from this forum is that substantially negatively geared property is not really the way to go for anyone. Generally, it is best to make a profit from day one.
This is sorta correct.
However, let's look at the average person who is on say the average wage, and say they are able to put aside about $50-$100 per week in savings in a Bank.
They put the $100 in the high interest account Bank, and continue to save, reinvest the interest, until they were able to get a deposit together for even the cheapest, well positioned etc property in an area that has some indicators that there will be some ongoing cap growth. It doesn't have to be anything really flash; just in decent condition to be rentable.
They then buy the property which turns out to cost them just shy of $100 per week - say; $75 p/w out of their own pocket after all the expenses and loan are considered.
The $100 is still put into the loan rather than the Bank.
All tax returns are re-invested back into the IP loan to further speed up the debt reduction process and increase the equity faster.
It is fair to assume that a well positioned property (this is where the DD selection process is important) would continue to increase in value over the longer term at 5% per year.
After 5 years of this strategy, the combination of debt reduction and cap growth would see a fair chunk of equity sitting there.
The investor may now be in a position to repeat this process, and may even be able to find another deal which is cashflow neutral or pos.
But the important thing is they are now on the ladder, they now have their foot in the door, and that first deal may even be cashflow neutral after 5 years, which means they are still able to invest their $100 per week and accelerate everything much, much faster..
This is where cashflow negative can actually be a good thing; it's the mindset which has changed. The average person in the street would not consider putting $100 per week into a property, but would always put it into the Bank, or on the nags, or into a slot machine.
Now, someone on an above average income to add some zero's to this equation and be much more negatively geared.
I personally think this is a bit unnecessary, because they have the ability to smash a small IP loan in no time, then go again, and without really affecting their lifestyle.
I guess the argument there is that they have the ability to start much further up the ladder in terms of purchase price, and therefore may be able to accelerate the wealth from cap growth much more.
For example; average Joe buys an IP worth $300k, and high-incomer earner buys a townhouse worth $700k.
Both properties double in value over 10 years. At year 10, the townhouse is now worth $1.4mill, while the average IP is worth only $600k.
The thing to remember is the average Joe could never save $300k in 10 years, and there is a very good chance he bought another IP in year 5 and therefore his wealth base may be a few hundred thousand more.
The argument I know which will now come from you is; "Yes, but; what if there is a vacancy".
This is covered in your DD about the demographic of the renters in that area, and the type of property you own.
Properties in decent condition and in decent locations ALWAYS rent, and quickly.
And if they don't, you drop the rent a bit and they then rent. It's as easy as falling off a log, and you should be able to rent an IP within a few weeks at most.