Why negative gearing sucks!

[VYBerlinaV8]

weren't you the IT contractor in canberra racking in 1k a day?
i think you're worth more actually.

Yes.

I don't really know who would be worth more. I've done ok from both working and investing, but ultimately it's just numbers, and I'm not so interesting in seeing whose is bigger, so to speak. At the end of the day, I do what I do, Nathan does what he does. I wish him all the success in the world.

I've actually started working a bit less than full time now, to give it a try. I still work about about 80-90% FTE (I work mostly from home anyway), and so far I'm really enjoying it. Gives me time to do some gardening and play guitar. If all goes well I might shoot for 80% in the medium term.

 

[investor2009]

I haven't read the post yet, but have finished reading through everyones responses and I must admit, Dazz had a great point.

He describes me to a T. I have four investment properties, which includes a nice house my Wife and I bought a couple of months ago with an interest only mortgage of over $500,000 on it.

My entire pay goes toward paying mortgages. I might have a few hundred bucks spare at the end of each year, but look forward to receiving my tax back, which is pretty well $9-10,000. Except this year, I will have to pay tax because we had to sell an investment to buy another.

So I might gather up $100,000 equity in a normal year (this year has seen no growth) and my investments might cost $10,000 after tax, with a half IO mortgage costing $20,000 or so.

I remember being at the same stage as Nathan about 3-4 years ago and we both used to PM quite alot because we were very similar. Next thing I knew Nathan was on the cover of API and quitting his day job because it was holding him back. I still hold around the same amount in equity (maybe $300,000 and continue to work 6 days a week with a main aim of financial freedom that is due to take another 5-10 years..

I'm considering selling something to enter pos CF territory. I would love to have the time to reno, but I don't, and also there are no bargains in or around Darwin in terms of run down property with lower entry cost that would create a pos CF position. I have some thinking to do.

 

[wobbycarly]

investor2009 - you're not the only one. I'm sure that if I'd found this forum, and been exposed to the many varied strategies and schools of thought that are present here, much earlier than I did, I would certainly be doing things differently!

But we are where we are, and we have to deal with it... but the next one, well!!!!

 

[investor2009]

Cheers mate.

I know that in time, things will come good, but it is a slower route to wealth, unless you are blessed with some great CG early on. I still have the ability to possibly take some holidays and do up the properties I hold now, but it's just not the same. I think that pos geared properties will be my next move. They can be had cheap, and they can see some excellent growth and are great value add investments. Not to mention offsetting your neg-cashflow.

 

[RedCat]

I'm not a part-time wannabe Dazz, because I'm not even a wannabe. I'm a TERRIBLE investor cause I don't care all that much about property or the numbers. Forgive me for not following 'protocol' and caring about just numbers. I certainly am not suggesting I know more than Nathan. Hell, I know less than most people on this forum because investing in IPs is not really my main interest in life.

I come into this forum from time to time to get up to scratch if I'm looking to buy. It's certainly not something I'm interested in being a 'professional' at because yes I really really do like my job. Subject to Fifth's opinion, there are people in the world that love coming into work and I am one of them. Lucky me. I'd much rather earn a living from my job than property.

I'm crap at holding onto money so I figure I should buy property when I can for long-term super. That's it really. And so for me personally right now, "cash flow positive sucks"

 

[Nathan]

Sorry for creating a debacle here.

The main thing is that everyones strategy is getting them closer to their goals. Aiming for CG is very important however if it doesn't cost anything to hold then you can obviously hold more properties and therefore more growth.

Nath.

 

[RedCat]

Totally get what you're saying Nathan, but unless you ARE experienced (and I'm not), you're not guaranteed to buy a good property to enjoy capital growth just anywhere. I definitely do not have the time to invest well at present. Also, the idea of handling too much property is a NIGHTMARE to me. I can't be bothered with it to be honest - I don't even look at the annual reports from the agents, just hand them over to my bookkeeper.

At least by buying that expensive inner city stuff, I feel like my chances are a bit better. I kinda "set and forget" until I've got $$ to buy again. I earn a decent salary (and I'm self-employed) so the tax advantages are good. By the time they become CF+ I'll be closer to retirement and happy to earn income from them.

Like you said, everyone has their own strategy and reasons for it. I commend you for yours and it's obviously working for you, it's just not my thing. I'm happy with my 7 property goal. Currently at 4 (with value of $2.7M) and hoping to end up at 7 in 5 years (with value of $5M). Then I'm done.

 

[Dan_p]

I thought it was a decent video. I think I need to get some positive geared properties to be able to make my portfolio grow.

Cosmetic renovations is as far as I would be comfortable with and get someone else to do it at that. Paint, carpet, kitchen.

Would it be a good method to have some positive geared properties to assist in holding the better quality properties for the short to medium term, is this what you do Nathan?

 

[MIW]

That's a bit harsh, MIW,

Nathan has been a valued member of this forum for a long time now. His strategy has enabled him to reach financial freedom very quickly.

Is there anything in the investment bible to say that the buy and hold, negatively geared scenario is the best way to reach financial freedom? For what it's worth, I think being negatively geared hinders your options and is reliant on capital growth.

Nathan is still using property to reach his investment goals - just in a different way to you, and dare I suggest, probably in a far smarter way!

Not sure of your issue here!

Yes, you are right, except why is he selling things? I though these forums were to exchange ideas, information, experiences, never did I expect sales pitches. So what have suits to do with flip/flops?
I do not try to instill my strategy onto anyone I just share my experiences, but do I sell anything? No.
Again, what has negative gearing to do with buying off the plan? You can buy a Mount Druitt property and be negatively geared depending upon your circumstances when you invest? I expected the video to talk about -ve gearing rather than what was presented...
If his strategy works for him, that's great but there's a BIG DIFFERENECE in being a property investor, property trader, or a business owner (he adocates all of these....through the title of his video on negative gearing? How unfair is this?)
I can see the dempgraphics that follow his strategy, so are you all advocating we leave our jobs and do what he does? So what will be classied as?
I am not sure of your issue too if you do not see the difference on what is presented in the video has nothing to do with the title at all...or the strategy of how one invests...

 

[MIW]

I really don't think he is trying to be bias and ambiguous etc... he is trying to help everyone as I'm sure he received help too when he was starting out. Nathan is not in it for flips - he just does this when the deal is too good not to flip. He mostly buys and holds forever - however they are generally positively geared or cashflow so as to not detract from his lifestyle.

I am just speculating here - but I think one of the reasons he flips some of these houses is because they are in areas where he deems the prospects are not great. So by buying for $50k then selling for $100k in a month in an area not likely to grow, he can use the profits for deposits into areas he thinks will grow. He is a good guy. I have met him a couple of times and he is both genuine and very knowledgeable. I don't think he is trying to pull one over you MIW; just trying to help the average investor who cannot afford the holding costs of multiple negatively geared properties - and everyone else in the process. If you watch his other youtube videos you will understand.

I do not have a problem with the person. My problem is that his Title of -ve gearing wasn't discussed at much at all. The whole presentation was about his deals and the strategies and a sales pitch so that's what I disliked.
You know there's a saying that if something sounds too good to be true then perhaps it is... Well I am sure he's successful and his strategy works for him, as he is running a property business, trades properties and maybe invests in properties too, perhaps develops, and renovates.
I hope you all become instant millionaires too but I will choose capital growth over yield anytime....that's just me.

 

[locko24]

Hi Miw
Can you give an example of an otp property that would not be neg geared?

 

[Felixter]

Perhaps because off the plan properties have much lower yields than do the types of existing properties that Nathan buys, hence they are far more likely to be in -ve gearing territory.

Perhaps a large percentage of -ve geared properties are not OTP therefore for credibility's sake Nathan shouldn't have unecessary linked them

 

[twodogs]

I sold some recently as I shot some dogs,

Hey, steady on! What did those dogs do, negative grrrrring ?

Not going to hold any grudges
Nath.

I might if you keep up this anti-dog campaign

 

[MIW]

Thanks for the feedback everyone.

As for your comments MIW, really I got no interest in talking anything up except how I do it.

By the way, I made my first million in Mount Druitt (Western Sydney) at age 21, I started to buy regional just for the kicks of it and spread some risk and I don't advocate buying regional. I advocate on buying numbers which work.

So what has negative gearing to do with that?

I am glad you are happy losing money each week and having offset from depreciation. Tell me if you were to leave your job what good would your tax credits be?

How do you know I am loosing money and that I hold a job? Neither one is true anyway...

I have around $150,000 depreciation schedules per year buying second hand property and most being metro buy and hold never sell properties I have accumulated over the years. These are a bonus, I don't use them as any foundation of investing.

Good luck to you but I know a person who has $300mil in property and never boasts about that but rather where the money is given.....

I am not a property trader, I buy and hold with an occasional sell. I sold some recently as I shot some dogs, and used the funds to invest in unit blocks I have purchased of recent times.

Buy and hold is my strategy and I hold 40 properties give or take a few.

Thank you for clarifying....

This video was just a simple way to highlight people don't get rich from negative gearing, you create wealth from investing in property which makes finical sense and not a buy, hold and pray approach. Buying something cheap, or with a good yield and of course strong growth prospects is the key to building a strong sustainable portfolio.

Disagree or don't understand. So I can buy any property cheaply, have a great yield and capital growth too.

Sure how can a $200,000 property in sydney go up? Well what is easier? a $200,000 property in western sydney going from $200,000 - $400,000 or a $2,000,000 property in mosman going to $4,000,000? One needs to go up $200,000 one needs to go up $2,000,000.. It is all relevant...

Totally agree, but an extreme example... I too like to buy more affordable that stack up the numbers and have other factors considered

Some will get what I am trying to say and some won't, I will respect that but I do get a little touchy with acquisitions being thrown my way.
Not going to hold any grudges

Please don't, it's just open discussion forum. But I still did not like your video tiltle as to me personally it is misleading. Most conversation was about deals, how you look, what you made, so to me it wasn't a discussion about negative gearing....
Negative gearing is not just a simple idea that you buy off the plan and make a loss, you can buy in Mount Druitt (anywhere for that matter and does not mean you automatically be positively geared). You know very well how many positively geared properties you need to create posibilities to reinvest and certainly capital growth for wealth. And you do sell because you did mention that on the video. Anyway, perhaps next time imply a strategy you adopt rather than negative gearing discussion...

 

[kathryn d]

Nathan,
I admire what you have been able to accomplish at such a young age.Even more, you are trying to encourage others, that it indeed is possible, with a little (lot) of hard work.

I find it hard to understand investing in property, and not really being interested in it.
My eyes light up when I talk about it...it's fun!!

 

[Nathan]

There is now two people in this thread trying to pick me to pieces.

I am an investor.

I invest in property for capital growth.

Putting $250,000 into a deal is not investing if your trying to make a property neutral. And if it is to make it positive, then yur not getting great return on capital are you?

It is not all about positive cash-flow and not all my properties are. I make money from all my properties and they have their crucial points. The point is treat your investing as a business and not get caught by sales people in suits trying to sell you a property for a commission.

I don't care what you think of me, I put some light humour into a serious topic and some over opinionated, "people" took it to heart because they have got these type of deals. I don't really care what YOUR opinion is of me, its YOUR opinion and you are entitled to it.

What am I trying to sell? A new property? An old property? any property? Education? What???

Sure I have products and services so what?? Do I make my $$ from that? NO. I make it from investing.

Your not an investor or a business person obviously Felixter because if you were you would understand simple numbers....

Seriously, who would put $250,000 cash down on a property to get $0 back on it? $250,000 deposit could build a neutral portfolio of 10 properties. Go back to your TV and keep watching infomercials pal

I must say, I haven't had a good little challenge online for a while its a really nice feeling.

Good night all!

p.s. I don't have time or energy to reply to all those little comments throughout this thread about how you can't do this and that or extreme views.

The reality of it is that deals can be made or properties can be purchased. Point of the video is know your numbers and don't get sold to. Have a solid plan, a starting point, end goal and work out whats best to get you there. Not just buy stuff willy nilly that gets sold by the project marketing company.

 

[Nathan]

Hey, steady on! What did those dogs do, negative grrrrring ?



I might if you keep up this anti-dog campaign

Sorry mate

 

[Nathan]

I thought it was a decent video. I think I need to get some positive geared properties to be able to make my portfolio grow.

Cosmetic renovations is as far as I would be comfortable with and get someone else to do it at that. Paint, carpet, kitchen.

Would it be a good method to have some positive geared properties to assist in holding the better quality properties for the short to medium term, is this what you do Nathan?

All depends on what is going to help you reach your goals.

At the end of the day property investing is all about adding to your lifestyle and not subtracting from it. It is important to have a balance and the right vehicles to get you to the end goal safely.

I do have high cash-flow ones, some cheap junkie stock, and my key foundation properties which build a base to build a sound financial future from.

Hope this helps.

 

[redwing]

Sure how can a $200,000 property in sydney go up? Well what is easier? a $200,000 property in western sydney going from $200,000 - $400,000 or a $2,000,000 property in mosman going to $4,000,000? One needs to go up $200,000 one needs to go up $2,000,000.. It is all relevant...

Some will get what I am trying to say and some won't, I will respect that but I do get a little touchy with acquisitions being thrown my way.

Not going to hold any grudges

Chat soon,
Nath.

Hey Nathan,

Enjoyed the video and perspective as always

With regards to the above, I like to look at it that should the $200,000 property in western sydney go up 10% then you've had a $20,000 gain

With regards to the above, I like to look at it that should the $2,000,000 property in mosman go up 10% then you've had a $200,000 gain

 

[Nathan]

Ok, I will do a quick little example of how great negative gearing is....

$50,000pa salary.

Now buy a property for $400,000 rents $350pw or $400pw and its negative after all expenses by $200pw.

$200 x 52 = $10,400 loss.

So balance sheet position is $50,000pa - $10,000(round numbers) = $40,000pa.

Now add another neg geared property, thats $40,000 - $10,000pa = $30,000pa.

Thats two properties and your now on $30,000pa and not paying tax. Whats the lifestyle chance from $50,000 to now $30,000 income.

Now what is the plan moving forward to save a deposit? you can't save now because the properties are eating all your cash-flow...

Its all a vicious cycle and have seen all too many people buy into this recently and thought I would share.

I don't need to clarify anymore but this is the moral of the story, negative gearing sucks.