Jamie Alcock on Negative Gearing

Nope.

The LNP had Peter Costello.

The ALP had Paul Keating.

 

"Socialism is not a way of life. It is an unworkable formula which would apply to robots but not to men and women."

From Fraser's preselection speech in 1953, which laid out the merits of liberalism over socialism

 

No it isn't.

Higher income earners probably will enjoy more of a return through NG, but they are paying more tax up front anyway.

Negative gearing (Neg cashflow) can be "carried" at a higher level by higher income earners (unless they have filled all their income with doodad spends), but anyone who has the ability to save a deposit, get a loan and buy a property can become part of the investment class.

Conversely; a higher income earner (if they are smart money managers and saved prodigious amounts of their after-tax income for deposits) could whack a fair amount more cash into the purchase and have every property they buy pos geared from day 1.

We are already seeing a lot more of the Gen Y folks buying their first property as an IP.

I personally (like others here) have never been in the high income earner group - my wife and I combined are able to service a higher loan level of course - but; I would class us as yer bog-average Mum and Dad from Averageville; so if we can rack up a few IP's - then it is doable by most.

 

@Bayview you are right. My investment partner earns about $35k and was negative gearing 2 properties. He is not happy because I am moving towards sending them positive overall. But it does demonstrate that low income earners can and do negatively gear property.

 

Has your "partner" ever tried to get a loan by themselves? How will a bank look at $35k income?

 

Looking at the current policy and labours policy, there isn't much of a difference if you sell the property after 10 years. I did some real rough calculations and as long as you sell the property you would be around 20k worse off under labours policy (500k home / 8k losses year) - Not a huge difference over 10 years. However if you never sell the property and do not have a 2nd investment income to offset against then you'll be far worse off as single property investor.

The only people that benefit are people will multiple investments. If you think that a people with an investment properties represent a small proportion of society, then imagine the amount of people with multiple investments - not many.

So what does this all achieve? Poor people still wont be able to get into the market and potentially as tenants, their rent may rise. Even a 10% drop in Sydney property prices is not going to allow the poorer families of this country into the market. I know that I will be increasing my rents regardless if my property is grandfathered or not if the market allows me to.

Middle income investors with a single IP lose because now they have to wait until they have a capital gain to make a claim (and still be worse off). And the folks with multiple investments win (most likely wealthier individuals) because they can still claim yearly loses and probably s pay a good accountant to find the best tax advantage.

 

I also earn $35K and I bet no bank would touch me. Hubby earns a bit more than I do and anyway we are both low-income earners. Would you like us to put out our hands for the aged pension ? We will anyway because we don't live in Sydney and we have not been able to avail ourselves of the Sydney-only raise in prices that has happened recently and has not benefited us at all.

 

The reality is, not everyone is going to be able to get into the property market. For an individual earning less than 40k, it will be a battle to find a property to purchase without significant savings. However, its not impossible and with a lot of hard saving, budgeting and looking in the right areas it could be done.

The below property is inner city Newcastle, literally 100 or so meters to the wharf and only a few kms to the beach.

1.06/569 Hunter Street Newcastle West NSW 2302 - Apartment for Sale #121333530 - realestate.com.au


if you could come up with a deposit, that property would be close to breaking even.

 

Not my "partner" thank you. We invest together, so he is my investment partner, that's all. He bought and paid off his PPoR and got a loan on his own for our latest purchase which he bought 50% and I bought 50%. He got his loan based on security, capital, income and rental income. It can be done.

Of course none of this means that the current combination of NG and CGT should remain as they are. I don't think they can. I just don't appreciate it when people claim that low income earners can't access negative gearing because that is not true.

 

It would depend entirely on the IP I select...

The thing a person on $35k needs to do is expand their field of vision to look where places are much cheaper, but have good rent returns and a few indicators which could lead to some cap growth for the area....they are out there.

For example; one of our earlier IP's (which we still own) cost $105K, and was renting at purchase for $185p/w. (it is now worth approx $230k, and is renting for $265p/w - was up to $310pw, but the mining boom collapse has put an end to that for the time being).

Now; in terms of CG this is nothing fabulous compared to other parts of AUS - but we are talking about a person on a lower income who is looking to get a foothold and begin their IP journey, and hasn't the capacity to buy their first IP at Potts Point or Albert Park, etc..

But; the rent return for this IP has always been pretty good, so if the $35k investor were to keep smashing the loan payments, increasing equity, rent increases plowed back into the loan, tax returns plowed back into the loan instead of whizzing off to Bali or Vietnam or wherever - for a few years anyway - it is fair to assume they could buy another one after a few years and repeat.

A person on $35k could afford that property - not 2 weeks after starting their job, obviously; but certainly a year or two down the track of of work and savings....

And the critical factor is how a person on $35k income lives from week to week, manages their money; how many Money Hacks they have or haven't, and their doodad spending mindset - in order to save a deposit..

It may involve boarding in someone's house, riding a bike to work, second hand clothes, second hand - or no - furniture... and so on (done all that myself when younger and broke...slept on sec/hand mattress on the bedroom floor while boarding in a blokes house for approx 12 months one time, walked to work - not bragging; just explaining what is required to get ahead if you have limited resources).

 

Correct @Bayview, he has had to sacrifice, struggle, live frugally and work hard to get where he is. The difference between him and some is that he doesn't see anything wrong with that.

I get the point made by @LibGS that if he got his last loan based on my income, capital, equity or if I went guarantor for the loan, it doesn't count. Despite the snide way he put it. Lol. Anyway, it was asked what would happen if he went to the bank on his own and the answer is that he got his own loan.

 

+1
If there are two people with annual income of $35k and $50k, the usual presumption is that the one with the higher salary should have no difficulty in getting the first property.

Not if the person with the higher salary has other priorities of living for the day, the next doodah, next holiday, with mental blockage of considering property investment pursuits as greedy or uncouth. This may reflect the attitude of many who wish instead to push the barrel of unaffordability and seek government intervention to lower the bar of attaining the first property.

Your jv partner is a great example of positive mental attitude, perseverance, diligence, goal focused and frugality. There is nothing wrong with this at all. Equity in properties is won honestly and honorably despite what others may say to the contrary. But, I am being a bit unfair on naysayers, those with higher salary want the first property to their specification, in the prime suburb and city of their choice.

 

Dare I say; not even those on the higher salary.

 

Unfortunately, that can be the case. Generally, the expectations of rights, entitlements, living standard, etc cloud the attitude of naysayers to some extent!

 

Cheers. We never made any money in property without a lot of hard work. I have the blood to prove it. Let's just say that bricks and knuckles don't get on too well. I can post pics of what we got up to on the weekend. Has to be tomorrow though. I am knocking off for the evening.

 

It wasn't meant to be snide. When did your friend get the loan? Under what conditions? Post some details, I'm sure there are many people on here on low incomes who would love to know how to do it. Until I see details, it's a unicorn.

 

that doesn't make sense, capital gains tax applies to investments across many asset classes. negative gearing is a resi property only deduction so I don't quite understand how NG exists because of CGT in your mind.

Agreed, NG is used by all income levels but from memory although the average income level of people claiming NG concessions is around 80k as an overall figure the total $$ claimed is disproportionately weighted towards high income earners, which is not surprising.


on a side note - your partner only earns 35k/yr but is unhappy a property will put money into his pocket instead of him having to prop it up?? I find that a touch odd. either way, great effort by him to be investing on such a low income.

 

If you are going to be on the pension in future and have been claiming NG benefits then it kind of works against the argument for NG...

 

We live in the best country in the world, I from Melbourne live in the best city in the world. Regrdless of that some people will still not be happy and it's our governments fault! No one else's but the governments.....

It's honestly a moot useless point arguing over, keep it, scrap it, who cares! Those who complain will find the next thing to move on and complain about, that is 100% guaranteed!!
Those that want to make somethings for life , will simply adjust and get on with it.
There are 200 threads on this forum on this very topic and the same people are making the same argument thinking they will somehow swing the other members view. It isn't going to happen.

 

The goal at the start of this journey was to replace our income and fund retirement, even though we are low-income earners. I can introduce you to other people my age and income who have done it, even investing in the same outer-ring locations.

Were the economists having this same discussion ten years ago or fifteen years ago, or has it only come up since the last cycle and capital city houses have been deemed unaffordable? Why I ask is that every cycle folks complain about how unaffordable housing is, but I don't recall ever being told until recently that NG is to blame.