Frequently Asked Questions
Click on the question to find the answer
This is probably one of the biggest misconceptions in the market
place and one which costs many potential investors big money in lost
opportunities. Don't you fall into this trap!
Positive cash flow properties are NOT hard to find if you know where
to look and how to find them. However, some people give up after a
few phone calls and when they can't immediately find a property that
meets the formula.
Our response to this question is comprehensive so please take the
time to read it carefully. It may be worth hundreds of thousands of
dollars to you if you make the mental shift to understand how and
where to find the gold nuggets. It will set you apart from the
The first thing to understand is that you need to know how to
recognise an opportunity when you see one.
Please understand that some of the biggest opportunities in life are
not going to come chasing after you. You need to go looking for them
AND you need to know what they look like when you find them.
This is probably the second biggest misconception that many property
investors buy into and it simply isn't true!
There are basically two ways to make money in property.
One is through capital gains and the other is through rental
Some of the capital gains enjoyed by property investors have been
very substantial and create the impression that this is the major
reason for holding property.
While we enjoy the capital gains of property investing, I think it
is a safer strategy for the future to focus on positive cash flow
The cash flows from your properties offer you a greater degree of
certainty and security than the speculative opportunity of a capital
For long periods of time, real estate appears to do nothing. Then
all of a sudden it may increase dramatically and before you know it,
the value of your properties seems to skyrocket as buyers scramble
to buy up everything they can get their hands on.
Rents on the other hand, tend to be far more stable and predictable.
During property booms, rents will have trouble keeping up with the
escalation in property values, however they tend to climb steadily
in small increments as the rental demand continues.
One of the biggest lies perpetrated by property marketeers is that
positively geared properties do not enjoy capital growth.
This simply isn't true!
Often there may be a timing difference between when inner city
properties enjoy massive growth and when this filters out to the
So next time someone tells you that positive cash flow properties DO
NOT enjoy the type of capital growth that negative geared real
estate does, recognise it as a lie and ignore what you are being
Yes we've heard these horror stories BUT we believe the key to
stress free property management is good tenant selection, firm
property management and insurance.
If you (or your property manager) check out your tenants past
history, check up on their references and generally interview them,
you will usually sort them out fairly quickly.
The next key to success in this area is to carry out regular
property inspections as often as permitted by law (or have you
manager report to you in depth). If your tenants do not look after
your property properly, do not pay the rent on time or cause lots of
complaints, it's time to be firm and move them on.
Just to make sure that you have taken every other precaution, you
need to insure the property and recognise that if things go wrong,
you can always fall back on your insurance.
When you buy a new property you would certainly expect to have fewer
maintenance issues than with an older property and where issues
arise, it is likely that they will be covered by the builder's
warranty for a number of years. You also have far greater
Depending on the age of the property, your depreciation deductions
will be lower when you buy an older property. Nevertheless if you
obtain a quantity survey for your property, you may be surprised at
how much depreciation can still be claimed.
In addition to depreciation there are many other tax deductions
available to you as a property investor, irrespective of whether you
have bought new properties or older ones. You need to discuss these
possibilities with your tax adviser.
When you are told things like this, it is a good idea if you ask
yourself whether what you are being told is just sales talk, or
whether it is fact. You also want to think about whether what you
are being told is coming from someone who really knows what they are
talking about or whether what they are saying is just their opinion.
Listening to opinions is a waste of time. Remember talk is cheap –
especially from armchair experts.
Absolutely! Find yourself a good property manager, tell them what
you expect of them and keep a close eye on what they do.
Be willing to change your property manager if they do not perform to
That will depend on how many properties you want to own and your
particular family and tax circumstances. We advise you speak with
your tax specialist to structure your portfolio, minimise tax and
pass on your wealth to your loved ones as effectively as possible.
Yes, but we advise you speak with your tax specialist to structure
your portfolio, minimise tax and pass on your wealth to your loved
ones as effectively as possible.
A small or DIY (do it yourself) superannuation fund is an
individual, family or small business based fund of one to four
The DIY fund is a separate legal entity. This is what makes having a
DIY fund different to holding a member account within a larger
superannuation master trust or retail superannuation product.
Because of their small size, and the closeness of the relationship
between the fund members and the fund trustees, the fund members
have a far greater say in how the funds operate.
DIY funds form the fastest growing segment of the Australian
superannuation industry. Australian Prudential Regulation Authority
Statistics of January 2003 show 246,000 small funds with a total of
430,000 member accounts holding total assets of $99 billion.
On average self-managed super funds have 1.75 members, with a member
account average balance of $230,000. (Source: The Association of
Superannuation Funds of Australia Limited).
NEED THE CORRECT ANSWER
Land Tax is a state tax that varies from state to state. Some states
have an exemption threshold which applies before land tax is levied.
Thresholds may be different depending upon whether you buy the
properties in your own name or in an entity.
Larger portfolios will generally attract land tax and it is your
responsibility to find out if you are liable for land tax.
It is best if you consult your accountant for specific advice
regarding your particular circumstances.
Four things have got to happen for you to grow concerned about the
future of real estate. You can start to worry when:
1. People become addicted to sleeping without a roof over their
2. Young families stop making 'tricycle motors," (think about it)
3. Someone invents a new way to manufacture vast quantities of
cheap, vacant land near major cities.
4. The world's thirst for Australia's commodities and
resources comes to a standstill… not likely, not for a very long
Seriously, can you envision a time when people won't be buying and
selling real estate?
Can you imagine a time when people won't want to be financially
That's why we are so confident about real estate. As long as people
need roofs and families grow kids, real estate is a sure bet -
barring, of course, another Great Depression. In which case, we'll
just keep playing the game at lower prices, because even in a
depression, people still need a roof over their heads and families
still grow kids.
Good question because these terms are very different.
Positive cash flow means: that after all expenses of owning and
managing your rental property have been met, you will have a cash
surplus from your properties BEFORE any tax refunds are taken into
consideration. At worst, you will be looking for a break-even
Because Land Tax is an expense that only certain investors with
larger property holdings incur, we do NOT allow for Land Tax in
positive cash flow calculations.
Most people are into negative gearing (whether they know it or
As their property portfolio grows, many negatively geared investors
eventually reach a point where they can no longer obtain finance to
buy another property. With each property they buy, they need to put
in more of their income.
Negative gearing is where the investor needs to contribute money out
of their regular income to support their investments. Since they
also need to meet their living and lifestyle expenses out of that
regular income, there is clearly a limit to how many properties the
negatively geared investor can purchase before the banks say stop!
The only way that such an investor can acquire more properties is if
he or she gets a substantial pay rise or if the rental income from
their existing properties increases dramatically. Even though the
properties may be appreciating well, the negatively geared property
portfolio still requires ongoing external cash resources to pay the
bills and more particularly, to service borrowings.
We've heard more than one negatively geared property investor
lament: "I invested in property so that I could eventually leave my
job but now I find that the more properties I own, the more I need
my job to keep paying for the investment properties."
With all of the attention surrounding positive cash flow real estate
investing, some negative gearing advocates have re-invented
themselves as positive gearing gurus and marketers.
They pretend that they are talking about positive cash flow when in
fact they are merely presenting negative gearing as something
different. They say that you can achieve a positive cash flow from
these loss making properties through the tax refunds arising from
the depreciation allowance.
They talk about positively geared properties with a 6.5% rental
return or an even lower return.
This is just negative gearing dressed up to sound like something
different. This is definitely NOT positive cash flow.
Just think about it.
If your loan interest rate is 6.5%, how could your property possibly
be achieving a positive cash flow when you still have to meet the
cost of council rates, water rates, property management fees,
insurance, repairs and possibly body corporate fees.
Ah, they say. You have to allow for the tax refund you get on your
cash outgoings and non-cash items such as depreciation.
When they do the calculations, these people use the individual tax
rate of 48.5% which may or may not apply to you. They also talk
about paying the least amount of tax. Here's the problem.
If you want to pay the least amount of tax, then your tax refund
will also be lower and therefore, guess what? – You are looking at a
real cash loss. Money out of your pocket! Isn't that called negative
You can't have it both ways!
The problem is that they play these smoke and mirrors tricks which
you only discover later on down the track.
And there's another problem. The depreciation allowances which these
pseudo positive cash flow advocates rely on for their cash flow
calculations, actually decrease over time.
Furniture and fittings are often fully depreciated somewhere between
three and five years. Therefore, if you rely on these items for your
cash flow, you may find yourself dipping into your pocket once these
depreciation allowances run out unless your rental return increases
sufficiently to cover the shortfall.
These people claim to be talking about positive cash flow but in
reality they are not.
Beware of these imitators that are selling you down the negative
Once again, positive cash flow means: that after all expenses of
owning and managing your rental property have been met, you will
have a cash surplus from your properties BEFORE any tax refunds are
taken into consideration. At worst, you will be looking for a
It is your choice what type of properties you invest in. It is also
your choice whether you invest or not. You alone will decide whether
you are willing to lose money by following the negative gearing path
or even the so-called positive gearing path, or whether you want to
invest to make money. It is our strong hope that you will see the
light and become another one of my true positive cash flow success
If you own your own home or any other piece of real estate, you may
have equity in this property that you can use to purchase one or
more investment properties.
If you don't own any real estate and have a well paying job, you may
be able to start on your investment portfolio straight away. It may
depend on how much you have in savings or what type of loan you can
get and the type of property you want to invest in.
These days there is a large variety of loan products available
including "low-doc" and "no-doc" loans which can suit a variety of
You may also find some joint venture partners who are willing to
work with you to invest in property for your mutual benefit.
Some people say yes. We say it depends on the overall market trend,
current interest rates and the particular property you are looking
at. There are good times to buy property and there are even better
Buy during times when the sellers are more negotiable. This will be
at times when demand is low and property prices are stable or
falling and when it takes a long time to sell a property. It stands
to reason that when the market is hot, your chances of negotiating a
good deal are lower than when the vendor is struggling to sell
his/her property, particularly if he/she is under pressure.
Good deals can still be found in a strong market but they can be
harder to find and are more easily recognised by those people who
have done their homework and who know what they are looking for and
where they are most likely to find it.
Sometimes it just makes sense to learn, study, do your research and
to invest when the time suits you. When the market is hot in your
particular area it may make sense to check out other markets that
may not yet be as buoyant.
Most certainly! Anyone who tells you otherwise doesn't know what
they are talking about. Property is no different to other markets
that go up and down with supply and demand and the desire (or need)
of particular vendors to sell quickly.
The good news is that property is not as volatile as some other
markets and even though values may pull back a little for a while
they often tend to stabilise rather quickly. The other point here is
that if you don't need to sell at that time, it won't really affect
Here's another important distinction to be aware of.
The types of properties we advocate are in regions with massive
government spending and intrinsic value through mining,
infrastructure, industry and development. This is the biggest sector
of the market. This is the sector that experiences the smallest
impact in an economic downturn.
It's the top end of the market that gets hit first because tenants
scale back their accommodation expenses in a financial squeeze and
look for something cheaper. That means that the demand for average
properties actually increases!
They may not be as glamorous as some of the higher priced properties
but they are certainly more solid and predictable and you can own
more average properties for the same investment that you would need
at the top end of the market.
Have 3 properties for $100,000 than one for $300,000 because with
three properties splits have the risks three ways. If one of the
tenants moves out, you still have another two to pay the mortgage.
If the one tenant in the $300,000 property moves out, your cash flow
stops. Which would you prefer?
Our free property investment advice is provided to source property
market past history and future growth information from reputable
independent research companies to locate the right property
Statistically in Australia, over 70% of property investors are on
incomes between $35,000 and $40,000 per annum. Over 90% of all
millionaires become so through investment in real estate.
“It's not how much you earn that counts, it's what you do with what
What you mean is that you have no cash deposit. Cash is not really
necessary when you have equity in your own home.
Having sufficient assets against which to borrow is all that is
required and in this way, you can borrow the full amount plus all
the additional costs. Finance your investment property with an
investment property loan that is affordable with manageable
It is the compounding effect of property value increases which is so
powerful. As each year passes growth occurs on top of growth.
If a property is worth $100,000 today and next year it increases in
value to $110,000, then the year after that if it increases at 10%
again the value will be $121,000, that is $110,000 plus 10% (or
$11,000) and on goes the escalation. Its exponential growth
accelerating at a faster rate as each year passes.
To use a well worn gardening analogy, it is a little like planting a
tree. Early growth is slow, but as it establishes itself it grows
faster, and starts to fruit. The fruit drops, and more trees grow
and start bearing fruit. Before we know it, we have an orchard.
It is a similar kind of compounding effect with property. Property
wealth creation comes ever so slowly at first, but eventually
arrives in abundance. You have to make a start, no matter now small.
With prudent property investment all that you need is the right
information, time and patience. For a detailed explanation of
compounding, please view the Power of Compounding page.
At present rates are still falling and according to the experts it
should continue to fall well into next year. No one knows for sure
at what point rates will stop falling but your lending expert will
have a very good feel for the movements of rates and should be
consulted to discuss the loan strategy for the following reasons:
1. In the current rate environment your lending expert would advise
against a fixed rate property loan as it is more likely that rates
will go down than go up, and being trapped at a high fixed rate is
not where you want to be. Your expert would recommend a variable
rate loan to take advantage of the perceived drop in rates in the
2. The reverse is true when rates are going up.
3. At the time of your property purchase an investment analysis
should be done to show what tax benefits flow from your investment.
One of these benefits relates to interest that you pay on your loan.
You may claim the interest back at the highest rate of tax that you
pay the ATO either as a PAYG earner or self employed person. You may
in fact claim this and other tax benefits through your regular pay
cycle or in a lump sum at the end of the financial year. If you are
on a variable rate loan and rates go up you will pay more interest,
but you will also be able to claim more back through you tax
benefit. Essentially we must remember that investment property is a
long term investment and that interest rates will rise and fall
through the life of the investment property and should not be viewed
as a reason not to invest if rates are high. Invariably at the top
of the rate cycle its the best time to pick up well priced
We were brought up to believe that we shouldn't borrow money. Were
Mum and Dad wrong?
Yes and no! The golden rule of borrowing money is to borrow for
appreciating assets such as property, not for consumables that
depreciate in value. Our parents were right in deterring us from
borrowing money for cars etc, which over time can become worthless.
However, when using debt for appreciating assets such as property,
it is the most important tool to building wealth.
Why hasn't my accountant told me everything about investing in
When you go to the service station for petrol, does the mechanic
come running out to suggest that your brakes need checking or that
it's time for a tune up?
We probably expect too much of accountants. They should be able to
answer all of your questions competently, but don't expect them to
be creative in guiding your wealth creation program.
Accountants are usually specialists in their area of expertise –
accounting. They will expertly complete the tax forms for you after
you have provided them with all the figures. They are usually not
specialists in property investment and should not be relied on as
such. However, there are some accountants who do specialise in
property, and some even have rental property of their own.
I don't need advice; I already have an accountant / financial
That is great. We do not try and replace them. You will find that
your accountant is an historian he will work with what has happened
whereas your Financial Planner works with you in relation to your
shares. We deal specifically in property...
With over 40 years collective experience in the Australian property
market and access to the latest past history and future growth
property investment information from independent research companies,
Positive Property Investments can help you with free investment
advice on property investment.
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