About a month ago I wrote an article titled: Caution! Positive Gearing, Positive Cashflow and Risk. Today I want to add to what I previously wrote. Please enjoy “Further Caution! Positive Gearing, Positive Cashflow and Risk”.
Despite what you may read, no one can really promise that a property will produce “positive cashflow” without knowing what your taxable income is. The software we use for cashflow analysis is comprehensive, of a commercial standard and used by numerous financial planners and real estate agents alike. Again, I recommend you be very careful when presented with what someone alleges is a “positive cashflow property”. As interest rates go up it’s becoming a bit of a myth for most people.
Speaking recently with a client led me to run some numbers to determine what rental return would need to be achieved in order for a particular property valued at $325,000 to produce positive cashflow. By that I mean that the rental income and tax savings alone would cover all of the property expenses and outgoings; with zero cash contributed to the initial purchase or ongoing expenses. I used an interest rate of 7%.
This person, whose taxable income had already been reduced by the deductions associated with an existing investment property, would need to achieve a rental income of approximately $520 a week; or a 7.9% rental return! A figure virtually impossible to achieve in the market cycle.
If using mrd’s advanced finance strategy, where expenses are capitalised, the amount of rent required for positive cashflow would be $385 a week or 5.8% – this is still unrealistic, in my opinion. The rental appraisal supplied to us by a local agent for the property in question suggested $350pw max (i.e. 5.2%) was a realistic market figure. That’s a pretty good outcome in my opinion – to achieve a 5.2% rental yield on a well located property in an area we would recommend; chosen for its capital growth potential.
Understand that what is negative cashflow for one person can be positive for another. On the other hand, a negatively geared property is negatively geared for everyone, given ‘gearing’ means before tax. Negative cashflow will become positive in time as rents rise.
I remember talking to a person in Adelaide in 2000 about a 2 bedroom unit at Kangaroo Point just across the river from Brisbane’s CBD. From memory the cost was $144,000 and the result to him was a $14 a week shortfall (in 2000 dollars) at first, becoming neutral after a few years. He decided he was not interested as he felt that an investment should be returning money to him from day one and not cost him anything. He ignored the fact that he was looking at purchasing an asset worth $144,000 without contributing any cash at all to the purchase! Had he gone ahead, his shortfall would have been neutralised by increasing rents over the first few years and today the property would more than likely be delivering him positive cashflow and would have somewhere between $200,000 and $250,000 of equity; created out of “nothing”. Perhaps you have met this person, or someone just like him. You know, the ones who say “would have, should have, could have”.
Support From Competent And Ethical People
While the luxury of support from competent and ethical people is rare in this industry; that’s exactly what mrd offers. Nick has uniquely positioned this business in the market place. Unique in the range of services offered and unique in that they are offered to you complimentary and without obligation (and that seriously is unique).
If you have never been exposed to what we call a Personalised Retirement Options Plan (PROP) and experienced the power of mrd’s “Retire On Your Equity” (ROYE) software to chart a workable plan forward for you; I recommend you ask today. The word has obviously got out in recent weeks and months as (literally) hundreds of people have taken (or are taking) up this offer.
Personalised Retirement Options Plan (PROP)
While we will not offer you financial advice, we are happy to share our experiences, strategies and why we do what we do in an online meeting (i.e. over the internet).
We call this meeting a “Personalised Retirement Options Plan” (PROP) and offer it to you without cost or obligation.
As these appointments are over the internet it doesn’t matter where you live. Of course if you prefer and it is convenient you can come to our office; but for many the privacy of their own home works best.
NB: A PROP is not aimed at those planning to retire soon. If you have not already worked a plan it may be too late for you; sorry.
Our complimentary, no obligation offer is for those who still have time to avoid ending up broke.
- Are you working?
- Do you have equity in an existing property (yours or someone else’s) and/or a cash deposit?
- Are you serious about taking charge of your tomorrow by doing something today?
If so, let us powerfully demonstrate (using our proprietary ROYE software) how possible it is for you to build your own workable plan.
We understand that your desire to explore possibilities and options is because you want to learn… and we will never interpret that as a license to sell; that’s our promise!
- Yes please; I would like to speak with an mrd Property Mentor to determine if I qualify for a complimentary, no obligation PROP >>>here
- Detailed explanation of what a PROP is >>>here
- We will need to assess your borrowing capacity before we can do a PROP. Completing this online (secure and encrypted) can be done >>>here
Happy Investing,
Martin Bell
mrd Customer Care Program… because investing is personal
