Positively Geared Property and Depreciation

[ENP]

When people say "cashflow positive" and "positively geared" does this mean before or after depreciation?

[Jumpin]

Newsflash ENP - as of Apr 1 this year, depreciation doesn't exist. So I'll let you guess.

[WGN ex-property manager]

Depends if they are trying to sell you an off the plan apartment or not ;-)

It can mean either, so its' best to ask if you're hanging a financial decision off the numbers.

I have always worked my own feasibility numbers pre-tax (ie without depreciation), and then treated the tax return as a handy lump to put towards the next project.

[Keys]

Newsflash ENP - as of Apr 1 this year, depreciation doesn't exist. So I'll let you guess.

Why? I understood it was on the house. Not the chattles.

[WGN ex-property manager]

Indeed, chattles still depreciate.

[buxlo122]

Depreciation is a non-cash item so it does not effect cash-flow.

[Orkibi]

When people say "cashflow positive" and "positively geared" does this mean before or after depreciation?

The True interpretation IMHO is after all expenses the property Gives you Cash flow ($$) for "Cash flow positive".

For "positive geared" means Rent is covering mortgage payment.

[ENP]

So I've done some rough numbers and 8% yields with 20% cash deposit just basically breaks even. Does that sound right to you?

[Orkibi]

So I've done some rough numbers and 8% yields with 20% cash deposit just basically breaks even. Does that sound right to you?

It depend on the on going Expense component of the particular property, Best put it in a spreadsheet and play with the numbers.

[CJ]

When people say "cashflow positive" and "positively geared" does this mean before or after depreciation?

As stated above, Depn is a non cash item so does not effect cashflow. Positively geared is more vague. I would probably do it on a all expenses basis (ie. incl depn) otherwise it is the same as cashflow positive.

The key is not whether it meets a defination but whether it gives you a profit, whether that be cashflow it that is what you are going for or capital gains, or ideally both.

When useing a deposit, dont forget the opportunity cost. Say you use $20k as a deposit, remember you are forgoing $1000 (ie. at 5% interest at a bank) so what ever you do, it has to do better than that (to compensate for risk).

[NovInvestor]

I would base my numbers with 0% deposit, ie 100% finance.

[CJ]

I would base my numbers with 0% deposit, ie 100% finance.

Agree as that incorporates a return on the amount of deposit you put in.

[Jumpin]

Indeed, chattles still depreciate.

Indeed they do. Then you have to replace them. So if you are relying on chattels depreciation to maintain a +ve cashflow, then you will find out soon enough you are living in cloud cuckoo land.

[Tan]

When people say "cashflow positive" and "positively geared" does this mean before or after depreciation?

These words mean totally different things to different people.

A property someone has had for 10 years which now has a 30% LVR will be cash flow positive for them, but probably not for me buying today with 80% LVR. Or my expenses may be more - I may love renovating to extremely high standards while you maintain to stop the building falling down.

Work out what your bottom line is, which will be different to other peoples but will make it work for you and use that. If your projected cashflow shows a profit at the end of 12 months, that's great. If not you need to check very carefully that you can fund the deficit.

What difference does it make if you find an exact definition, then go broke?

[kapitibeanman]

These words mean totally different things to different people.

I completely agree. Who knows how some of these ratios are concocted, there
are no reliable rules. If you're buying for long term, just use your noggin and work out a few "what if" scenarios, using conservative inputs. What would happen if current interest rates double, for instance, would you be wiped out? If so, wouldn't you be over-extending?
As Robin McCandless suggested in another post, not going broke is the big priority, then giving it time will do the rest, although he said it better (can't find his post, sorry).