Jamie Alcock on Negative Gearing

Can one NG a term deposit investment?

That is, can one borrow money at say 4.5% and invest it in a term depost at say 3.0%.

 

Sure, if you are particularly fond of losing money

 

Isn't the subject NG?

You asked PG a question about his mate's loan - so maybe take some of yer own advice on staying on topic.

But anyway; I'm sure one of the MB's here can give us an example of one of their clients who has obtained a loan on a lower income?

I wouldn't have thought it would be that unusual - a 90%LVR (or higher?), LMI, IO, decent savings history and a decent DSR, strong rent return - should do it, I would have thought?

Here's an example of a "bottom runger"....to get the feet on the ladder;

55/131 Nepean Highway Dromana Vic 3936 - Unit for Rent #415587779 - realestate.com.au

Some of these joints are buying for approx $90k, and up to mid $100k's:

131 Nepean Hwy Dromana Vic 3936 - House for Sale #122175202 - realestate.com.au

Geez; prolly should buy a few of these meself , and cut the FHB's out.

(rhetorical question; would a FHB even look at any of those?)

 

Firstly it isn't a house so cant be a first HOME buyer property .

Also probably not as it doesn't have a double garage (remote controlled), doesn't have polished 2 living rooms with 4 beds and 2 bath, Isn't on a 1,000m2 block of land, isn't walking distance to trains or shopping centres, is on a major road, is more than 10km from Melbourne and oh also doesn't have water view which is what they may want being on the peninsula.

Something more like this
36 Beacon Vista Port Melbourne Vic 3207 - House for Sale #122799066 - realestate.com.au

Obviously at your 131 Nepean Hwy price...

 

The property we are working on now was nothing flash at purchase. First photo below is condition at purchase (minus the silver stand) and photo after is three days of hard work demolishing a very bad design and dated materials. No one said making money in property is easy or glamorous.





Maybe we should expose the bricks and leave it at that. Industrial chic?

 

I guess they could forego the FHB grant and buy it anyway?

They are not forced to take the handout, right?

 

Um making money was the plan. So, after six years the only money we have made was one year that we owned a house in a mining-related town. Otherwise we have lost money each and every year. The rent we are getting now on one place is less than we first received in 2011 and the other house is a mere $20 a week more after six years. I cannot see how we can ever pay down the debt without selling and therefore I cannot see us ever being able to live off the rent.

On the other hand, if someone made the same purchases in Mt Druitt when we made ours in Qld, would they have doubled their money in the same time? What has happened to their rents?

What about someone in Perth or Darwin? Ten years ago I read a stack of real estate investment books by decent reputable authors and I thought it was a no-brainer. Just do what they did. Little did I know all the years ago before I discovered Somersoft and the wealth of knowledge here that does not carry across any other media, little did I know that the $$ someone can make in one place does not transfer across to other locations in Australia. So here we have been, cheerfully throwing away thousands of dollars each year thinking that after three or four years they would turn positive.

Sorry Francesco, but there will be no living off rent for us idiots. I could have paid cash for a villa on the beach somewhere in Asia with the $$ spent trying to make something good. All in vain - the taxpayers have been helping us get by, which I truly appreciate, but so far to no avail.

#nothappyjan

 

I find it sad, but unsurprising that many people on this site make a big deal about lazy people and dole bludgers, the evil socialists etc, etc. But don't bat an eyelid at what is effectively tax fraud. My people talk about LNP moral myopia, and here is a clear example.

 

You seem to get offended very easily. Is the internet a new thing for you?

 

It is the DEDUCTIONS aspect of the NG that is not spoken about, which will save billions more than just the NG, once the NG-CGT rort is removed.

 

• Congratulations on double dipping on the tax payers teat, once for NG and when that did not work, back on pension.
  
• "there will be no living off rent for us idiots" Oh no you are smart, it is the tax payer who is the idiot here. Letting you socialize your speculative losses and privatize the profits. But hey lets not talk about it, let us keep the discussion confined to lazy basta....who want it all without any (back in my day...) work.

 

Actually no, I was involved in setting up some of the first ISPs in 1991. But it must be new to you given you have no idea that people can actually read your posts about your tax fraud.

 

The 50% discount is absolutely the massive factor. I actually think the funniest part about the Labor policy is how the change to the CGT discount has been completely glossed over by the media so they can bang their red herring on everyone's head when it's by far the bigger change in their policy. NG that's grandfathered and still available on new property is just about a nothing change, basically those seeking negative gearing will go for new builds and otherwise it will change nothing. The change in the discount is massive comparatively and the far bigger change.

It can for sure but negative gearing is a minor factor in this equation that could easily be removed from it altogether. Property investment will still make money without the negative gearing, removing it simply means that the investor pays their own way instead of getting a government "handback" to subsidise it. Negative gearing is, quite simply, an unnecessary government cost that has no good reason to exist other than to incentivise property investment. A good property investment would still make plenty of money without it and the positive consequences of actively reducing debt (profit making investments are just flat out better than loss making ones even with tax subsidies if the capital growth is the same) would be more than enough to justify it, the savings to the government are an added bonus.

Yes, NG is available to other asset classes but it's mostly impractical to achieve, especially in the current low interest environment.

Will kill your and @Perthguy examples in response to my original comment here...

Your suggestion is that they buy positively geared properties to be able to get into the market as low income earners, simply proving my point that negative gearing is largely unavailable to those who aren't already high wealth or high income types. Buying the negatively geared property is just fundamentally difficult without the assets or income to support it.

@Perthguy's partner used his PPOR to secure his loan, let's say it's a below median property at 435k, that already puts him in the top 50% on median wealth in Australia. So realistically to argue that he isn't a high wealth individual is really arguing where you want to draw the line on high wealth, he's still a person whose circumstances are vastly better than 50% of the population on wealth terms.

I'm not arguing that low income earners can't or do not use negative gearing but the stats heavily support that it is high wealth and/or income earners who have far greater access and receive far greater benefits from it. It's more a transference of wealth mechanism than it is anything else due to our marginal tax system and the capital outlay required to enter the property market. It's not something that helps the little guy get ahead because the little guy is mostly unable to access it.

I've been clear though that I have no issue with negative gearing itself, I think it's a perfectly valid mechanism but I absolutely think it should be limited to only be applicable against income of the same source. Like capital losses can only be applied against capital gains. This provides the incentive for people to pay down debt (good, especially given our incredible debt levels as a society), have positively geared assets (good again and pays tax down the road) while removing the existing tax breaks that favour those least in need of them and counteract the idea of the marginal tax system (as long as we have it then it's counterintuitive to have mechanisms that subvert it, imo at least).

I've also been clear that the capital gains concessions, main residence exemptions, state tax exemptions and means testing exemptions are the major drivers behind housing affordability. All are far more consequential and damaging (socially) policies than negative gearing could ever dream to be (you have to lose money to negatively gear, it's a textbook law of diminishing returns example) and all of them are hiding successfully behind their red herring mate. Now obviously fixing them would absolutely harm property investors because it would remove the government interventionism that is so prevalent in the property industry and such a major reason why property is the best and easiest investment class in Australia and why everyone would be stupid to have not been involved over the past 25 years but I think we need to find a balance between pricing a generation out of the market and not harming those who've squirreled everything into property and it's going to be difficult to do but the reality is that the youth right now are dealing with economic circumstances that haven't been seen since the absolute worst of the 80s and on current trends will soon rival the Great Depression and this issue is something that those in charge don't have the slightest clue how to fix other than to close their eyes and hope, thus removing government expenses that are pushing up the price of a need is a tolerable compromise to the really ****** circumstances that have been forced on our youth.

 

The proposal is not to remove the "NG-CGT rort". Not even close. Did you read Labors policy?

 

But couldn't I offset this loss against other income and have taxpayers subside my loss?

 

In Labors proposal, isn't the part about carrying forward losses to deduct from the capital gain exactly that? A "handback" to subsidise am investment in property? Not only is NG not being abolished for current investments and new dwellings but effectively retained (just deferred) until sale. The only question that remains is whether the switch from a 50% to 25% CGT discount will go far enough to disincentivise property investment.

 

Actually much before you did if you remember our early exchanges. In my opinion it does not go far enough:

• Not enough attention to dodgy deductions.
  
• Depreciations should be wound back
  
• CGT exemption should be completely axed from property investing or other passive investments. OOs should remain exempt being a social need.
  
• NG should be completely removed as an offset against active incomes. It should be quarantined against passive incomes and that too against the respective income streams.
• Distributions from the trusts against property (income, expenditure) should be taken away. Those importing in-laws from Asia for rorting the system further might be disappointed.

Having said that, current labor's policy will dissuade enough property investors to abandon it as a tax avoidance vehicle, thus reducing unnecessary tax hemorrhaging and the icing would be the savings in the deductions.

Go ahead, tell me you do not like labour policy even though you dislike NG as the very rich will still be able to use it, so you will vote against it and continue to NG your properties in the meantime.

 

The "grandfathering" proposal is just a way of gradual phase out of NG, as people sell, those properties become "un-negative-gearable", and in time, NG on existing properties fades away.

It is not effectively retained until sale, just offset against the capital gain if any. Taxable income from someones job remains the same. If someone keeps a loss making property and sells it at a gain or loss less than the ongoing negative gearing cost, the result will be quite different between the two tax policies.

 

Oh, then you would have noticed that NG is not being removed, just deferred until sale.

The tax avoidance vehicle remains largely there. There is still a massive CGT concession and any annual losses are kicked down the road for someone else to pay for. The immediate deductions might be a saving in the short term but they represent a massive liability for future generations.

It is a pity you have not participated in this thread. It turns out the problem with negative gearing is not negative gearing, it is the 50% CGT concession. Now I have more facts at hand I don't have a problem with NG. Labor is only proposing to stop NG as an immediate deduction on dome investments. They are not really abolishing it at all. As stated above, I am not sure the 25% CGT discount will be enough to discourage property investment. There is no evidence that it will. Oh, and you must have forgot I am not negative gearing any properties. They are all cashflow positive now, remember?

The only thing you got right is that I will vote against this policy. Too right I will. No new information had been provided that this policy is not a massive free kick to wealthier investors and a kick in the guts to ordinary Australians.