I have been to a lot of seminars about different ways of making money. I have also seen a lot of programs on the web.
I have written a Seminar Guide -A good seminar vs A scam & how to avoid getting ripped off on how the standard seminar works so you better evaluate whether a seminar you attend is good or dodgy (and whether you should sign up).
Starting with Property, in the next few articles I will explain some of the seminars and ways to make money.
Now lets have a look at buying properties that make you cash each week.
Cashflow Positive Properties OR Rural Properties OR NRAS National Rental Affordabilty Scheme
What is it: Properties that may cost you each week but give you a tax refund (usually because of extra tax deductions you don’t pay cash for= Depreciation called ‘capital allowances’ and ‘capital works’ by the ATO).
The government has a National Affordability Scheme – to get professionals required to run a town/city (police, nurses, teachers) into smaller towns.
- 1. Tax Back/Cash each week – You either get your tax back each year (or reduce the amount your employer withholds via a form lodged with the tax office) so that you increase cashflow weekly.
- 2. Can own “many” properties – Gurus may claim you can own many properties if you are receiving money each week (or year year with your tax refund).
- 3. Can keep current lifestyle – as you are not saving every cent for the mortgage
- 4. NRAS – Subsidy from government received if 20% below market rental.
- 1. Lower capital growth may result in lower profits overall – positive cashflow doesn’t mean lower capital growth. But it is common. As capital growth helps you to afford more properties (and may be the bulk of the money when you sell) this might mean you might not do as well if you had bought regular capital gains properties with negative gearing (e.g. you have a property brings in $50 cashflow positive a week (2,600 a year) and you sell in 10 years for a profit of 30,000. So you made 30k in capital gains and 26k in cash (which you’ve spent!)= 56k total (buy you probably have 30k cash).
Buying a negatively geared property you paid $50 a week (2,600 a year) and you sell in 10 years for a profit of 100,000. So you made 100k in capital gains and paid 26k in cash = 74k total (but note you probably have 100k cash as the money paid was in the past)
- 2. May be hard to find properties –Australian properties that are cashflow properties can be difficult to find. Some new properties, some rural property and NARS are cashflow positive. But finding the right one that will also have capital growth (see 1.) is harder to tell.
- 3. Your tax back (while good) is limited – If you are on the 30% tax rate (35,000-80,000) you will get a 31.5% tax refund (30% tax+ 1.5% medicare levy). But if your taxable income drops below 35,000 – any amounts below that will only be refunded at 16.5% (15% tax + 1.5%medicare levy). If you drop below 35,000 taxable income your positive cashflow might turn back into negative gearing.
This means while you can purchase many houses – eventually you will run out of positive cashflow (ie. Tax refunds).
- 4. Tax benefits usually drop off after first few years - Cashflow positive means that you make money because your net rental loss is paid back by a huge tax refund (usually because of large depreciation claims – capital allowances for assets like dishwashers and capital works – building costs). The building claims are usually claimable over 40 years (at 2.5% a year), but the other assets can be claimed over useful life (say 8 years for a dishwasher). So these claims tend to drop in the first few years and your positive cashflow might turn back into negative gearing.
- 5. Depends on tax rates –Cashflow positive is much less attractive than 5+ years ago because tax thresholds have dropped. In 2004 you reached the top rate of 47% + 1.5% medicare levy at 65,000! Now (2011 year) you pay 45% only when you get to 180,000.
Rating & Comments
Positive Cash Flow property was my dream for many years. Eventually I bought a property to satisfy the First Home Owner requirements, and because it has had good capital growth I haven’t looked back.
For high income earners – this is definitely something to consider.
Your Work: Med-High, Value of course: Medium, DIY – Medium, Cost: Medium
e -A good seminar vs A scam & how to avoid getting ripped off on how the standard seminar works so you better evaluate whether a seminar you attend is good or dodgy (and whether you should sign up).
Starting with Property, in the next few articles I will explain some of the seminars and ways to make money