Join Australia's most dynamic and respected property investment community

Positive Gearing.....

Discussion in 'General Property Chat' started by Cbrgirl, 13th Apr, 2016.

?

Is your property positively geared?

  1. Yes...and it works well for me

    33 vote(s)
    62.3%
  2. Yes....and it does not work well for me

    1 vote(s)
    1.9%
  3. No...I negatively gear

    12 vote(s)
    22.6%
  4. Other.....?

    7 vote(s)
    13.2%
  1. Cbrgirl

    Cbrgirl Well-Known Member

    Joined:
    18th Mar, 2016
    Posts:
    56
    Location:
    Away
    This article talks about the benefits of Positive Gearing.
    Something I am keen to do with my IP. The article makes it sound very 'positive' indeed :)

    Any comments or pitfalls that the author hasn't pointed out (other than possible tax considerations)?

    Switching gears on property investment
     
  2. Leo2413

    Leo2413 Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    5,844
    Location:
    Sydney
    It is simply not as black and white as just buying all PG property and she'll be right, just as the opposite is true, buying all NG or NCF property and you'll realise endless amounts of CG.

    I know people who have quite a few PCF and PG properties and in 8 years plus they have gotten no where, while collecting a small amount of profit each year. Also know others who bought all NG property and went no where too.

    IMO you need to understand and take into account your:

    Personal financial situation,
    Goals
    Personal strategy
    Growth drivers
    Property cycles
    Buying well.
    Risk profile


    The whole simplification of 'buying positive, buying negative' skips a whole range of important factors/considerations that will have a significant impact on just how much cash flow you eventually, meaning in the consolidation phase will be able to produce, and will it be significant or not.


    Just my opinion.
     
    Terry_w, VMR, kierank and 6 others like this.
  3. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,279
    Location:
    Sydney
    I read through the article...
    And in other news
    1+1=2

    The article says - Everyone should buy in regional! Wooo!

    In all seriousness, this is probably the only worthwhile comment in the article

     
    Terry_w and Bran like this.
  4. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,279
    Location:
    Sydney
    On another note, nothing irritates me more than people who say they have a positively geared property and when you dig you explain its because they put down a 50% deposit.

    They aren't lying, but the message they are trying to portray is simply skewed and adds zero value.
     
    Terry_w, York, mrdobalina and 2 others like this.
  5. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,604
    Location:
    Adelaide, SA
    Am positively geared and works for me.
     
    charttv, ellejay and Cbrgirl like this.
  6. Befuddled

    Befuddled Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    251
    Location:
    Sydney
    Agreed. I wish there was a consensus on the definition of positive gearing. Something like:
    • 80% LVR
    • All expenses considered
    • Depreciation not accounted for
    Otherwise you're not comparing apples to apples...
     
  7. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,521
    Location:
    Sydney
    All positive here as we develop all our IP's in Sydney & Brisbane, and still get really good depreciation and other costs rebates.
     
  8. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,279
    Location:
    Sydney
    For me I calculate it as follows:

    Total Cost (Purchase Price + Stamp Duty + Legal + Disbursements + Renovations + Other), basically what i out laid to get the property up and running.

    Gross Rental Income
    Less Total Expenses (excluding interest) (includes Land Tax)
    Less Interest (Total Cost x Interest Rate)
     
    Terry_w likes this.
  9. neK

    neK Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,279
    Location:
    Sydney
    Mine are all positive.

    1 started off as Negative years ago, built a granny flat (borrowed funds), made it positive.
    1 started off as positive from day 210 instead of day 120 - because the builder took their time.

    Depreciation is always a nice bonus.
     
  10. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,604
    Location:
    Adelaide, SA
    There was an agreement back on Somersoft to always use 105% (full finance + related costs) LVR to calculate cashflow. This way you're also considering the cost of money coming from either equity account or offset account.

    Happy for people to weigh in with expenses (which vary a bit per state, ie council rates and insurance are expensive in Brisbane compared to Adelaide), sans Depreciation for fairness (since everyone is on different tax rate).
     
    Befuddled likes this.
  11. joel

    joel Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    784
    Location:
    Adelaide
    I didnt get any rent from my tenants for 2 months or so, yet I've still made a profit over the 4 months ive owned the place and have doubled my equity by renovating. So yeah positive gearing is working for me so far.
     
    LibGS, Terry_w and D.T. like this.
  12. melbournian

    melbournian Well-Known Member

    Joined:
    2nd Sep, 2015
    Posts:
    1,331
    Location:
    melbourne
    yeah but if you see the properties they suggested as "high positive" geared in vic are like in the country mildura, bendigo, ballarat. and the suggestion that negative geared is for the odinary . in today's climate with a 20% deposit - i would not think there would be many places in vic that will be positive. dun talk about places bought 5 years ago as prices were different.like now, it is like saying buying a house in werribee or buying a block of land with an existing house in say ringwood north. both can be developed, werribee being positive from day 1 and ringwood negative but the end result after the dev is gain is higher in ringwood north.
     
  13. nic0

    nic0 New Member

    Joined:
    26th Jun, 2015
    Posts:
    1
    Location:
    ACT
    Both positive and negative gearing has worked well for me.
     
  14. Azazel

    Azazel Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,113
    Location:
    Brisbane
    Steve McKnight's 1% rule is a quick way to work it out if it's close.
     
  15. Cbrgirl

    Cbrgirl Well-Known Member

    Joined:
    18th Mar, 2016
    Posts:
    56
    Location:
    Away
    Can you please explain the 1% rule?
     
  16. D.T.

    D.T. Adelaide Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    5,604
    Location:
    Adelaide, SA
    Steve McKnight basically says that you should try to yield 1% above your interest rate. For example if you're borrowing at 5.5% and yielding at 6.5% you'll probably break even considering other costs. It's pretty rough guide.
     
    Gingin, Bran and Cbrgirl like this.
  17. Cbrgirl

    Cbrgirl Well-Known Member

    Joined:
    18th Mar, 2016
    Posts:
    56
    Location:
    Away
    Thanks D.T. - you are a wealth of information (as is the whole Propertychat forum). I am learning lots
     
    charttv and D.T. like this.
  18. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,722
    Location:
    Sid en e - olympic city
    I was not part of any agreement, but this is how I calculate things :) It is the only thing that makes sense unless no non deductible debt and lot of cash under the bed....I guess.
     
    Terry_w and D.T. like this.
  19. Beano

    Beano Well-Known Member

    Joined:
    7th Apr, 2016
    Posts:
    420
    Location:
    Brisbane
    Positive Geared ..I treat as
    Interest (100pc of total purchase price) plus all other associated cost (not tax ) being less than the rental
    Still possible ...just purchased a property at 6.4pc rental yield funding 4.16pc
    Probably a long lease too ! (Like over my or your lifetime)
     
  20. Sonamic

    Sonamic Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    956
    Location:
    Sunny QLD
    Use a positive geared to offset a negative geared? Costs nothing and still makes CG. All comes down to your Serviceability at the end of the day. CG is the end game but you can't go negative geared the whole way to get there.
     
    Cactus likes this.