Screw Property Investors

As expats my wife and I don't get negative gearing, to be honest its not that big of a deal as the losses are accrued and pay out big time when it comes to selling the property.

It doesn't seem to matter how many times I try and explain this to non-investment property owners they don't seem to understand that "no negative gearing" just means investors get a great deal when selling.....it doesn't mean that investors are losing out overall and that prices will come down so they can finally buy that waterfront property in balmain for 1950's prices......

 

Need to add:
5. SMSF franking credits? Out
6. IO loan? Gone
7. Council Rates? Up
etc...
Only being silly...Like all governments rules will keep on changing whether we like them or not. As Jim Rohn said, "We cannot change the weather or the seasons but we can change the sail...."

 

Adapt and thrive!

 

I always believed in the saying that "a dollar today is more valuable than a dollar tomorrow".
1. Negative gearing helps with cash flow
2. Negative gearing helps with servicing calculations
3. With 50% CGT discount, no you won't get it ALL back when selling. You only get half of it back compared to negative gearing 100% of it NOW
4. Negative gearing can help with "phantom" deductions like depreciation

In my book, negative gearing ROCKS. Not advocating that people buy loss-making properties just for negative gearing benefits as some investors are conned into believing but NG sure has a special place with investors in their early stages.

EDIT: I don't know if non-residents have access to the 50% CGT discount which can change the validity of some of the comments above but this is true for local investors.

 

Expats don't get the 50% LTCG discount as of 2016.

As for negative gearing being worth more due to dollar now worth more than future yep.
With regards to cashflow...yep
With regards to servicing calculations...nope

My point was it wont change the situation much.....spenders going to spend....savers going to save and invest.

 

With regards to servicing calculations...nope - how so? Many banks add back NG for servicing calculations. Some do it on actual interest for future borrowing and some on assessment rate.

It's all about consumer sentiment, hence the DEMAND side of the equation. Sure spenders will spend and savers will invests but poor consumer sentiment leads to protracted cycles.

 

Excellent posts. I often make it known that I’m an economic right winger who has a particular dislike for government welfare programs, and people often compare negative gearing to these programs. We aren’t directly being given money by the government to negatively gear, we are just being taxed slightly less.

 

OK back to this thread

Dear investors...........We may be royally screwed Labour has a foot in the door..... holly *****

Negative gearing...... gone.... with the wind

GCT reforms.......ouch

 

You know, with Liberals shoot themselves on their foot multiple times, this election is for Labor to lose.

Chances are negative gearing will be grandfathered anyway. If the market tanks I am sure PM BS will tell ARPA to loosen the handcuffs. Then you may have a field day snapping up cheap properties if you are prepared in your paperwork.

 

Whats killing investors now.........is APRA.... IO loans now reverting to principal and interest is very serious

Most investors probably not even understanding implicationsvof this

This.......and market sentiment changing is nail in coffin

I just got a $3k bill each month from bank.....ouch and double ouch. ..,,gone from IO to principal...... working on this

 

And that is what I am saying, once the market really tanks the government will just tell ARPA to loosen the grip on investors to rescue the market ..... But the market has to tank first.

A lot of investors will have their bill going up a lot soon, and I am sure myself included.

 

What's the difference? Being taxed less is another way of saying subsidised

 

Thye may water this down significantly as prices are coming off...they need property prices to correct not crash!

 

Sure....but its not costing you any more, its just making you pay down your principal faster than you might have AND making your property more profitable in that you no longer are paying the bank interest on the principal.

Basically I see this as a win win for investors in the long run and unless you did something stupid and over borrowed.....which you shouldn't have if you budgeted for rates to go to 7.25% (and considering we were in the cheapest rate period in a long long time) no one would have.

All that it means is you will need to be more conservative in your spending, still better than living than 95% of the rest of the world so there are 7 billion people who think you are "living their dream life".

 

Surely you jest....an investor who bought say 5 properties in the last 5 years lets say has a portfolio worth $2m with a debt of 1.4m. Lets say rents are 100k pa.

At I/O at 5% it is aobut 70k ...at all I/O they are paying about 100k with a 25 year term. Plus lets say 6k per property in costs...they have a serious negative cashflow...of 2500/mth. This will kill people....

 

Majority of Investors know that PI reduces their debt over the long run,
Apart from maximising NG benefits, Many investors use IO loans to stretch the borrowing leverage to get the max from rising market along, problem is not all understand that this strategy falls apart in a falling market.
Recent credit tightening and forced IO2PI rollover came as a big shock to many as they assumed IO loan renewals are a given as long as repayments are on time.
For many leveraged IO investors, its a forced realisation of the importance of cash-flow inspite of being asset rich.

I won't be surprised if at least 40% of these IO holders who are forced to rollover to PI in next 2/3 years are in serious negative cash flow situation, late 2019/20 would be really interesting.

 

Not quite.

The resident investor gets a deduction of which typically reflects as 33-40% back in cash. So its a regressive tax benefit. Then a higher value of CGT occurs (due to the costbase reduction) and yes they may get a 50% discount.

The non-resident investor gets an accumulated deferred loss. So they may give up the cashflow inwards of the refund. But this just defers. The CGT is NOT generally discounted at 50% and the taxable value of all of the taxable gain will be reduced by the accumulated loss to give a higher benefit v's a resident at that time. Each $1 of loss = 33%+ benefit so its equivalent. The trivial impact of the time value of the funds is a minor aspect.

Only a non-resident txapayer with a CGT loss loses.

I have many o/seas clients who defer losses. Can be a significant benefit. I once encountered a new client who hadnt bothered to lodge 20 years of tax as he felt it was just losses while he was away. Lucky he maintained records. When he realised what he missed he kicked himself. We needed approval from the Commissioner to lodge all the past returns (reactivate the tax file no) and he gained a $130K tax benefit. Saved him $40K + in tax.

 

Exactly.... it could be a tsunami when investors offload because they can not continue paying their loans.

What am I saying, let me rephrase....its already happening, the financial crunch is hurting property as we speak. Most markets are falling

The investor strategy of negative gearing in Oz will be completely up the creek.

 

Well you probably need to re think this, most investors I guess would be sitting on at least 3 IPs on this forum???? tack on 40% to IO loans??? approx. this.
If they need to sell property, lets hope the values are higher than the loans??

MTR