Positive Gearing – How to Build a Positive Geared Property Portfolio

Positive Gearing – How to Build a Positive Geared Property Portfolio

So, you’ve bought your first, second or third property. Congratulations — that’s no small feat.

But, before you celebrate, there’s just one issue: your paying money out of your own pocket to hold these properties.

Now what?

You’ve bought the properties every one else said you should buy.

To the people around you it looks like you’ve got your shit together and your getting ahead.

There’s just one problem…each week you see your bank account and your actually getting further away from working less, spending more time with the people you love and living the life of your dreams.

To help combat this dilemma, which I and many other investors have faced I have written a FREE GUIDE titled:

Positively Geared Property – The Easy Way. Your Guide For Investing In Positively Geared Property.

In this guide I’ll show you:

  • How to identify positively geared and cash flow positive property
  • Where to find positively geared and cash flow positive property
  • How to grow your own positively geared property portfolio

Please enter your email address to receive a copy of your free guide right now.

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Lets get started!

What is a positively geared property?

A positively geared property is one where the rental income generated covers all ongoing costs (including interest, council rates, body corporate fees, property management fees, and so on) associated with that property.

What is a cash-flow positive property?

A cash-flow positive property is one where the rental income, annual tax deductions and depreciation cover the ongoing costs associated with that property.

Do they really exist?

Contrary to popular belief positive geared properties exist in almost ever market in Australia. Positively geared properties come in many forms from units, houses and town houses, to dual occupancy, shared accommodation and granny flats.

You don’t need to buy in regional or in high risk mining towns to find positively geared properties, you just need to find a way to increase your rental yield and depreciation benefits.

What are the pros and cons of investing in positively geared property?

Pros:

  • Reduce your exposure to income, interest rate and market fluctuations
  • You are less likely to sell in a pressure situation
  • Can be used to balance a portfolio
  • Can increase your serviceability and attractiveness to lenders
  • Typically offers investors a lower entry point into the market
  • You can use the surplus cash flow to pay down principal, or to invest in additional properties

Cons:

  • The income you earn on a positively geared property is taxable
  • Positively geared properties are often located in regional areas, which commonly (but not always) see slower rates of capital growth
  • Can be sensitive to economic cycles
  • Potentially higher costs associated with maintenance and tenancy problems due to socio-economic factors
  • You will generally achieve a higher rate of growth over the longer term by investing in inner city properties

Are they hard to find?

Can you remember the first time you learnt to ride a bike?

Could you ever imagine not being able to ride one now?

Identifying positively geared properties is easy when you use The Quick Test:

“The Quick Test” was made famous by Steve McKnight in his book From 0 to 130 Properties in 3.5 Years.

“The Quick Test” or “The 11 Second Rule” will help you easily calculate the gross rental yield of any property.

This rule is particularly useful if you are looking at a large number of properties and need to filter them quickly.

If a property has a gross rental yield of more than 10.4 per cent it passes “The Quick Test”.

The gross rental yield is calculated by taking the purchase price (or value) of a property and dividing it by the annual rental income.

An example of a property that fails the quick test:

  • Purchase price $350,000
  • Annual rent $23,400 p.a. ($450 per week)
  • = $23,400 divided by $350,000 x 100
  • = 6.68%

An example of a property that passes the quick test:

  • Purchase price $350,000
  • Annual rent $36,400 p.a. ($700 per week)
  • = $36,400 divided by $350,000 x 100
  • = 10.4%

You can find an online version of “The Quick Test” calculator here.

Can I retire and live off the rental income?

Absolutely.

Will you be able to do it over night and without hard work? No Chance!

While there are countless examples of successful property investors living off the cash flow of their positively geared property portfolios it takes time to build up enough cash flow to replace your income.

For example:

If your dream is to retire in 10 years with a weekly passive income stream of $2000 then you’re going to have to purchase 10 properties which each provide you with $200 a week (after you subtract all of your properties holding costs).

While in theory the example above seems fairly simple, you also need to take into account tax, rises in interest rates, changes in the property market and whether the banks will allow you to service this much debt.

Is it possible to get capital gains from a positively geared property?

There’s an old wives tail that it’s difficult to achieve a capital gain by investing in positively geared property.

While it’s true that inner city and coastal properties have out performed regional properties over the last 50 years, its still possible to make a capital gain.

I have personally invested in multiple properties that have achieved capital gains of over 12% year on year, with maintaining rental yields of between 7 and 14%.

At the end of the day both capital gains and above average rental yields all come back to understanding the market, buying well, buying at the right price and adding value.

How can I build a positive geared property portfolio that will allow me and the people I care about to live our dreams?

At the end of the day this is the question we all want to be able to answer!

Based on my experiences (take a look at how I bought 6 properties by age 28 in 4 years here) I believe building a positive geared property portfolio comes down to rinsing and repeating the 5 step process below until you hit your passive income goal.

  1. Review your existing property portfolio
  2. Add value to your existing property portfolio
  3. Buy well
  4. Add value to your new property
  5. Re-invest your profits

Where can I learn more about building my own positively geared property portfolio and this 5-step process?

You can learn more in my FREE GUIDE titled: Positively Geared Property – The Easy Way. Your Guide For Investing In Positively Geared Property. 

Please enter your email address to receive a copy of your free guide right now.

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I would love to hear your feedback on my new guide in the comments section below.

Ben Everingham

About

Ben founded Pumped On Property after building a multi-million dollar property portfolio over a 5 year period. His mission is to show you how to replace your income through property investing so you can do what you love…full time.