Positively geared properties under $300k in Australia

Ah I see,

I never knew about that
Thanks for the enlightenment @Gockie

 

When's this recession?

If you believe soon, then why not wait and buy during the pending turmoil.

 

I have a few cashflow positive regional properties that I will be selling soon. They each make between 2-4K per year. I've had enough of tenant issues at that end of the demographic.

It's been a great way to get into multiple property investing so I don't regret buying any. but as any person matures they are just not the right fit for me anymore.

 

@AlbertWT, are you and @Tekoz related in any way? You sound so similar ☺

 

The reason why you should be looking for cash flow positive property is because it will get you out of working for a living a lot quicker. Negative gearing ties you to your job and each property increases the need for you to work and takes you further away from quitting your job. It increases the pressure to maintain your job and your level of income. A ridiculous concept.
Putting a bigger deposit on a property is not the way to make it positive, the total cost of the property, including costs, should be used in the calculations.
You may not be able to buy positive properties in major cities but you can create them using strategies like rent by the room, add a granny flat (not in Melbourne), subdivide and sell off the spare land to reduce debt, and creating multiple tenancies (upstairs, downstairs).

 

That's a little misleading you cant just pull out equity. It may have been easy once. but the rules have changed. You need serviceability or cash flow to access equity. Your interest rate will be calculate at 8% for serviceability, a property yielding less than 8% , may reduce your ability to access equity. Equity is useless if you don't meet service ability requirements.

 

How much quicker and how many CF+ IP's will you require for this?

 

That is just a numbers game isn't it. How much passive income do you need to say goodbye to your employer. We are all different in that respect.
But why stop there. Negative gearing stops you from moving forward because every deal puts you in a worse financial position, less equity and less disposable income.
Positive gearing improves your position with every deal because you increase your serviceability. You need to intersperse deals where you hold for income with deals that generate lump sums of cash, like a construction deal or a quick renovation and flip, to improve your equity position but why stop.
Generate more than you need and engage in some wanton philanthropy, deal with your own financial needs first and then concentrate on your soul.

 

Correct and I'm interested in how your numbers stack up. So you could start with replacing the average wage of $70k Don't forget about all the money you have to spend to get that CF+ IP. 10% deposit, stamp duty, legals, land tax, maintenance etc. Probably eats up the first 3 years of that income.

NG is a moment in time, not a strategy. And over that time it will become neutral and then CF+ anyway. I'm sure plenty here are negatively geared but still manage to continue moving forward. Don't think I've read any 'I paid for my 2nd IP deposit purely from the IP cashflow' stories, usually from equity achieved through capital growth or a reno.

I like the saying 'Cashflow is what keeps you in the game but capital growth is what gets you out'. Buy CF+ to increase servicibilty that will help buy the next growth IP.

 

I am not so sure about that in this post-APRA world because the way OFI debt is assessed.

Also, servicing is only half the equation, the big slow down factor is deposits.

 

Purchasing properties with a positive cashflow often means that you can buy more property, resulting in greater exposure and a higher net worth.
Chosen well, can still show excellent rates of growth.
Low priced property is easier to buy and is more abundant, and easier to sell as there are more buyers in that market.
Lower priced property is also easier to tenant as there's more tenants in that market.
You can spread a portfolio of lower priced property more easily than you can spread a portfolio of higher priced property.

You need growth in a negative or positive strategy to move forward, easier to do with positive.

 

It's quite a bit more nuanced than that.

 

Which is why debt reduction is the single best solution. Full stop.
Borrowing capacity is improved even without increases to salary or rents
Equity is improved even through periods of limited or slow growth.

How you achieve debt reduction is the tricky part. Do you try for a commercial deal? Do you try for a 20 year old cheap and cheerful regional cash cow? Do you try for dual occupancy? Do you try for NRAS?

For mine, NRAS is the single best cash flow tool, followed closely by dual occupancy. You cant get significant pre tax neg gearing benefits + significant post tax surpluses from any other property class. Full stop.

My clients are now seeing annual tax free surpluses approaching @9-10K per dwelling. For those with 3 or 4 such properties, they are now in a position to pay down an extra 27-40K of debt per year. And for those with 6 or 7 or 8... do the maths.

Some have exhausted their borrowing capacity for the moment, but within 2-3 years they will be in a position to borrow again and continue to expand, because they will be paying down such large amounts of debt during that time. So they have deliberately purchased properties solely for performing the role of producing vast amounts of cash so they can expand into a much larger portfolio, later- avoiding the ceilings they would otherwise encounter. They have long ago recognised that growth/equity is now very difficult to harvest , is very likely to be less impressive than for previous generations of investors, and is therefore unlikely to see them reach their goals.

But they havent missed out . They havent excluded growth properties from their plans. They have simply built their cash cow machine first ... so they can pay off their biggest liability- PPOR debt - which is the single biggest weight around any investors neck. And their next phase of purchases will be for growth...so they will end up having a far bigger portfolio and footprint thatn they could otherwise have achieved, and far sooner, but they will also have phenomenal cash flow underpinning it.

I have to really stress that when you hit the ceilings - and for most investors it's going to happen sooner rather than later - believe that, it's absolutely certain - pretty much nothing you can do will get you past the problem quickly, without selling. And by quickly, I mean 7-10 years. You will be stuck for that long, at least - unless you can secure significant income increases or win the lottery or inherit money , basically. Otherwise, you will simply have to wait for wage inflation and rental inflation to get you into a position to borrow again. Equity wont help. Only debt reduction will.

As I have said repeatedly, if you are nearing your ceiling already but have sufficient capacity for one or two more purchases now, I would be putting that capacity towards a cash cow. NRAS. Dual Occ. Your call...but do something, not nothing. Because if you dont use that capacity towards those purposes now, it will be too late when you finally accept you need to reduce debt, after you reach the ceiling.

 

I agree with the above. That's what I am trying to do now because of this very fact.

 

Debt reduction is a horrible idea. In most cases paying down debt also means paying down income and that is crazy. If I borrow $1m at 5% and invest it at 10% why would I want to pay it down. I would want to use the 5% income to borrow another $1m.
When I die it is my ambition in life to be buried in debt.

 

What happens if your borrowed 5% moves up to 7-8% after you borrow another mill?

 

Hold on..you are talking apples and oranges. What are you talking about? ETF's... LIC's, shares? something else?

Regarding property - if you are suggesting you can get 10% pre tax - good for you - but I doubt it very much. And even if you could, only 80% of rent is used by lenders, so 10% is really 8% on a lenders calculator today - and when compared with assessment rates of 7.5 - 8% that would keep your borrowing capacity @ neutral, or slightly improve it with each purchase - at best.

But its a mute point because it's extremely unlikely you are getting 10% pre tax through resi property, especially out of the gate in Year 1 when you need it for the servicing calc, so your post is nonsense.

 

@John What's OFI means ?

 

Redom did a great post on OFI. He explains it better than I ever can.

How APRA have changed your ability to borrow

 

How is that possible ?
Passing down debt to your children ?

I thought that after certain age, you cannot take some more loan post-APRA.