Dean - issues with negative gearing

[Gerrard]

Hi Dean - while I was picking up the 8th edition S&P I had a look at your latest video blog about negative gearing and it raises a few issues:

A couple of years ago you were Mr positive cashflow only, and now you're big on negative gearing. Why the change? Ok, the whole market has changed so maybe negatively geared is the only kind of property you can buy now?

You didn't talk about any of the risks tho. You assume the market will go continue to go up year after year but history has shown this just doesn't happen. And no I don't buy the argument "it's different this time".

Sure over the long term property prices have always gone up but there have been significant down times too where a lot of people without sufficient cashflow have gone to the wall.

Also, negative gearing affects servacibility with lenders so surely this will be limiting when it comes to acquiring more properties.

Dean - this isn't a criticisim of what you're saying. I recognise that times have changed and everyone needs to look for new ways of making it happen. I just want to know how you propose people deal with these issues.

Cheers
Gerrard

[xris]

A couple of years ago you were Mr positive cashflow only, and now you're big on negative gearing. Why the change?

Well Gerrard, I for one am not surprised at this change. I also think it is not at all unreasonable to believe that the advice given out by the RM fraternity should be taken with a pinch of salt because it usually changes to suit the circumstances of the moment.

xris (a member of the neggie club)

[cube]

But surely changing the advice that one gives to 'suit the circumstances of the moment' is entirely appropriate.

When, back in the good old days of 2003, positive cash flow properties were available, the emphasis was on finding them, because you didn't need to buy negatively geared properties if you could find positive ones.

Now that the boom has gone on longer than anyone expected and buying a traditional buy and hold in the major centres involves negative gearing, I think that it is entirely responsible of the educators to change their message to 'OK, so you've got to buy negatively geared properties. Here are some tips to help you add value/increase the rent/buy at a discount in this market.'

cube

[Monid]

But surely changing the advice that one gives to 'suit the circumstances of the moment' is entirely appropriate.

Agreed, but this, at least to me, sounds like dangerous advice, banking on high capital gains and maxing out a credit card to pay for it, advice that could cost people a lot.

Property can only pay you while you own it. Find a way to own more, understand the REAL holding costs.
An online approved NZ credit card can give yo uthe ability to own a significantly neg geared rental in Auckland. Once the card is maxed out at say 5K you will have made somewhere between 50 and 120K in capital growth. Tell me that’s a bad deal!!

However I haven't had a chance to watch the video yet, so I won't make any judgements...

David

[FreezingHot]

I think if you listen to Dean carefully in previous posts and blogs, you would note that to be sucessful in holding property you need to be able to trade property to gain cash for deposits to make the property neutral or positive. Dean has always stated he gains this deposit from trading and lease options.

So what is the debate? Sure if you plan to only hold a couple of properties his latest blog explains the way to go, but if you want to build a large portfolio you need to learn how to build cashflow from trading.

This is how I see it.

FH

[Cliffy]

Also, Dean only talks about negative gearing on properties where you have significant equity (ie. well below Registered Valuation) at purchase. This can insulate you from the pitfalls outlined above.

[FreezingHot]

Also, Dean only talks about negative gearing on properties where you have significant equity (ie. well below Registered Valuation) at purchase. This can insulate you from the pitfalls outlined above.

Had not thought of that. Cliffy just to let you know got another B&H without a RV have probably made 40k equity. You gotta love property!!

Patrick

[Cliffy]

Cliffy just to let you know got another B&H without a RV have probably made 40k equity

Nice one Patrick. Well done.

[FreezingHot]

Thanks Grant for all your help.

[Josko]

I don't think there is anything wrong with adapting your strategies to the market, though one has to be careful when advising to go into debt by maximising personal credit card debt. That sort of advice needs a lot more qualification then how it comes across in Deans Blog.

[Emblaze Pete]

Cant really see the big issue of using a CC to fund the difference of a negatively geared asset if one chooses to use such a facility. Whether the debt funding is obtained through a CC at 12 % or a revolving credit facility at 9 % makes no difference when assuming that on the other side of the ledger is a well brought, appreciating asset. Credit cards are only a nightmare to those whom like to go have a wee shop at toyworld.

The point of Deans blog is not necessarily the use of a CC to fund the debt, but is more about the numbers behind a negatively geared property and how they stack up

[Gerrard]

I don't like the credit card idea. I reckon anyone who needs to resort to a credit card to buy property must be pretty desperate so it wouldn't be such a good idea. The credit card thing wasn't really the focus of Dean's message tho.

A couple of years back just about everyone was anti neg gearing, but now that is seems to be the only way all the old arguments against it, risks and issues with it seem to have been thrown out the window and I'm wondering why. Do they not apply any more, or are they just being convienently ignored?

Gerrard

[calmone]

Credit Cards

I have used cards as a business back up a number of times over the last 20 years, in fact often when the Bank Manager has been unable to offer any extra funding a c/card has been utilised to buy stock etc.
I know we all hate to pay the higher interest rate but if you are prudent the returns you can achieve are way more than the costs involved.
I certainly can relate to what Dean is saying and will continue to practice it when I dont want to miss an opportunity for profit in a business or capitol gain on a property.

[Emblaze Pete]

A couple of years back just about everyone was anti neg gearing, but now that is seems to be the only way all the old arguments against it, risks and issues with it seem to have been thrown out the window and I'm wondering why. Do they not apply any more, or are they just being convienently ignored?

I don't think the risks have been thrown out the window at all. In Deans example the risk has been mitigated by buying well below RV.

[xris]

I once tried buying a house with a credit card. It came to nothing.

Another time I tried paying a re agenccy commission with my credit caed. They huffed and puffed and I backed down, writing out a cheque instead.

Thinking back I wonder if I should have backed down. Remember, this was a commission, not a deposit or part payment of the settlement money.

xris