Positively geared properties under $300k in Australia

Discussion in 'Where to Buy' started by AlbertWT, 25th Jul, 2016.

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  1. House

    House Well-Known Member

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    Other Financial Institution.

    Don't know how true it is but have heard if you set up a bloodline trust, death cover pays out standalone IP debt.
     
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  2. John Bone

    John Bone Well-Known Member

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    The example I gave was just that. Perhaps I should have been more vague and said that I would not pay down debt so long as the income from the debt exceeded the cost of it. I thought that would be obvious.
    The asset class is irrelevant for the purpose of the discussion, I was merely responding to the notion that paying down debt is a good thing and I happen to disagree.
    The subject of interest rates rising is also easy to answer. Rates do not go up 1% at a time, they creep up over time. The rises occur because of economic activity that is there for all to see, things like property price rises, CPI increases etc. Rates and prices will go up but there is a point where the increases in economic activity creates opportunities to sell, wait for the downturn and buy again. This is property investing 101.
    AlbertWT mentions passing debt to children and I have heard that nonsense before. I will agree that passing debt to under age children is not a good outcome but surely if you have substantial debt and young children you will have competent guardians specified in your will who can deal with the debt. I also hear this from people with grown up children and surely they would be sensible enough to deal with it. If they aren't then it's your fault. What are you going to tell your adult children, sorry you can't have the income, we sold it all down.
     
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  3. beachgurl

    beachgurl Well-Known Member

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    You're right there. My portfolio is positively geared but with the recent debt assessment changes I'm very negatively geared. Each regional CF+ cheapie now hurts my serviceability
     
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  4. Greyghost

    Greyghost Well-Known Member

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    I don't necessarily agree that buying cf will get you out of your job sooner.

    Any day of the week I would have rather had 2 central Sydney 5-600k properties than 4 Logan properties. Sydney doubled, Logan moved..
    With that I could have bought properties to suit whatever strategy I wished.

    Cashflow is necessary and something that I pursue, but it is not going to make you financially independent if there is no CG over time.
     
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  5. euro73

    euro73 Well-Known Member Business Member

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    It is if the cash flow is sufficient to retire the debt
     
  6. euro73

    euro73 Well-Known Member Business Member

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    The asset class is very relevant. When your capacity to borrow for resi investment property is being assessed against 7.5% - 8% and against P&I , and where only 75% or 80% of rental income is accepted as income for servicing, earning even 10% yields is only a break even proposition for borrowing capacity purposes, as it washes out at 7.5 or 8% on a bank servicing calc. 7.5% v 7.5% is a dead rubber scenario. One cancels out the other. There is no net gain or loss to capacity.

    So the simple fact is this; you would need to generate yields of better than 10% pre tax in order to just modestly improve capacity for resi property portfolio building purposes. And you'd need to generate to yields of better than 15% in order to significantly improve capacity. This is obviously unachievable from Day 1 on new resi purchases, which is when the money is being borrowed - not 15 years later when yields may finally approach those levels..... and debunks your flawed argument that the asset isnt relevant. There is no getting around the fact that once capacity is reached, debt reduction will be required.

    The only exceptions will be;
    the sale of an asset - which reduces debt, but even you agree also means the loss of income
    significant increase in income from salary -
    significant increase in income from rent - and as demonstrated, that would need to be quite spectacular, requiring yields to explode upwards to at least 10% pre tax
    lottery win - which would likely be deployed towards debt reduction anyway
    inheritence - which would likely be deployed towards debt reduction anyway


    Now, other asset classes - different story perhaps. The income from ETF's and LIC's or shares or whatever else is not necessarily shaded to 80% by lenders , and the debt used to purchase those assets , if it is sourced away from resi lending vehicles, will not be assessed at 7.5-8%.. and if purchased with cash, there would be no debt assessed against them at all ... so under those circumstances an argument can be made to support what you are suggesting

    But where resi property is concerned, the new rules are the new rules, and this makes the asset in question, that is producing the income in question, very very relevant.
     
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  7. 2FAST4U

    2FAST4U Well-Known Member

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    Where are you planning to purchase?

    People's incomes also have a massive effect. I would always recommend purchasing in capital cities, but for moderate income earners it's a lot easier servicing cf neutral & positive properties in comparison to cf negative. With this low inflationary environment even rents have remained fairly subdued. I agree CG is king and that's where the real money is though.
     
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  8. House

    House Well-Known Member

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    Probably good old SE QLD or Melbourne. Haven't looked too much into which suburbs yet as can't buy for at least another year but will be as close to a Cap city as possible. Although was told I should be expecting a promotion soon so should take me up to at least $80k.

    Currently working on other income stream potentials and I've got a partner who will be added to my servicibilty.

    Will probably start with a pure CF+ IP with reno potential. Think that would be the best way to start?
     
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  9. John Bone

    John Bone Well-Known Member

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    I repeat, for the purpose of a discussion about whether paying down debt I a good idea or a bad one, the asset class is irrelevant. Debt is debt regardless of how it is secured.
     
  10. skater

    skater Well-Known Member

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    I'm going to stop you right there. EVERY ONE of our early properties were cashflow positive. That was all we could afford! The deposit for each one came from drawing down equity from previous IPs.

    YOU CAN HAVE BOTH! It's not one thing or the other, but let's look at this in a different way for a moment. How many negative geared properties can you hold? Let's just presume there's no APRA, you've got heaps of cash and/or equity to use for deposits and you want to buy a bunch of IPs. Each one is negatively geared by $100pw. Each time you go to get approval for the next, your servicability has gone down by $100pw.

    Now, again, we will use the same presumptions. You find an area that you like where the average property is cashflow positive. Let's be really conservative & say that each one makes you $10pw. How many of them could you hold?

    I agree with much of this. By focusing on cashflow property, we were able to both hold onto many properties AND enjoy fantastic growth. The thing that many people don't take into account is that many places have their own cycles. It is not just the Capital Cities. Sometimes it's a case of holding onto a property until it is 'ripe', especially if you've made an error in judgement. By all means go Regional, but do some research first. Don't go into speculative areas. Don't expect something to appreciate overnight. It takes time.

    Another thing that I've noticed about some Regionals is that they don't have the same cycles. Some don't really seem to have cycles at all, just a steady slow appreciation, that is hardly noticeable day to day, but when you check the figures over 10-15 years, there's been some good growth, it's just not all at once like you get in a City that's having a boom.

    Yes, Sydney doubled....but has Logan finished moving yet? There could be a lot more to come. (I don't have anything in Logan, so I don't know the market there).

    Or fill offsets against that dept.:D
     
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  11. Beano

    Beano Well-Known Member

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    What type of tenants do you have now ?
     
  12. beachgurl

    beachgurl Well-Known Member

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    All on benefits and all seem ok for now. There's a higher incidence of arrears, adding/removing tenants and higher vacancies due to not being in great areas. One of the 3 properties has been great for years. The best property out of the 3 is the worst for arrears and evictions
     
  13. Beano

    Beano Well-Known Member

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    Great net yields?
     
  14. skater

    skater Well-Known Member

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    Isn't it funny the way things go. Our worst property is tenanted by a single mother on benefits. She's been there for years & is paying above market rates. She's not the best tenant, but it's not the best house either. She pays her rent like clockwork, although she didn't initially. Whenever she annoyed me, she got a rent increase.

    A few years back we had another in the same suburb. Renovated to within an inch of it's life. It was lovely! Yet every tenant we had started good & went bad within 6 months. Some places just seem to attract bad tenants.
     
  15. euro73

    euro73 Well-Known Member Business Member

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    Borrowing capacity for resi property is not determined that way.
     
  16. Rich2011

    Rich2011 Well-Known Member

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    Properties get sold for various reasons, deceased estates and mortgagee's are just a few...
    I recently got a property for a client in Logan Brisbane, purchased for $261,000 and has rental applications for $420 per week. Only required new curtains otherwise fully renovated, nothing to spend. This is a free standing house on 680m2 only 2klm from a railway station.
     
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  17. showtime94

    showtime94 Well-Known Member

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    Whats NRAS ? and what's dual occ ? Thanks
     
  18. showtime94

    showtime94 Well-Known Member

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    Is there.more properties that go for that price ? Im looking to buy in brissy soon
     
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  19. Journeyman

    Journeyman Well-Known Member

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    Interesting read. I agree that an investor can grow out of the regional cheapies for cashflow. Probably comes with increased incomes and equity, and decreased patience/tolerance of rubbish. Luckily I live near 5 of mine, I can keep and eye on them and attend to minor repairs myself, or pay a local handy man to do it. My whole strategy from 2004 - 2007 (7 purchases) was to buy property in towns within commuting distances of large regional centers. I figured people would get squeezed out of rental markets and look for more affordable housing.
    Tenants into low cost housing can be problematic. The lesson I have learnt here is to not give too much lattitude. Act early within the terms of your agreement if they fail to comply. Use centerpay if they are on benefits.
    They (cheap cashflow positive IP's) are also less lumpy, a vacancy does not matter as much to overall chashflow.
    I have a 4br house in Werstern Sydney that I have owned since 2001. Its became cashslow positive about 4 years ago. Great tenants, just signed another 12 months. But I never arranged a depreciation schedule. Cashflow positive SHOULD factor non cash deductions. If you are a mug like me who waited over a decade to get depreciation schedules done on properties, pull your finger out. This can make a cashflow negative property, become cashflow positive.
     
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  20. skater

    skater Well-Known Member

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    National Rental Affordability Scheme, Dual Occupation (two dwellings on the same block).
     

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