Hello, everyone. This is George Germanos from Alliance Accounting.
Today, we’re going to be giving a few more tips away. Our tip today’s in relation to property and accumulating wealth through property. And we’ll bring in a few things in regards to tax that will help you grow your property portfolio a lot quicker.
Now, everything we do say is our opinion only. We don’t expect you to act or rely on this advice. And we ask you to seek professional advice if you do decide to act on any information.
My name is George Germanos, and I’ve been in the accounting industry for a decade now. I’ve been helping investors and businesses grow their wealth and their portfolio. The way we do that is by providing quality work, hands-on work and a great service where our clients can call us any time they wish to ask any questions. We’re basically their partners when it comes to business and investment.
Now about property investing, of course, you’ve probably heard about negative gearing. Negative gearing is a fantastic way to get into property. It is great in that you are able to reduce your tax. You are able to reduce your tax money to help fund the property. Now, one thing though is I’ve seen people negatively gear their properties to a large extent, to a point where the money that they’re paying to keep the property is so big that they really can’t afford it.
Why is it that you can negatively gear a property without necessarily paying any money? Those ways include non-cash expenses that you can put on your tax return, so a few of those might include, for example, depreciation, capital works and buying costs. So depreciation where quantity surveyors come in to the property or assess the value of items in the property such as fixtures and fittings, the carpets, and what have you, put a value on them, and then determine how long assets are valid for and then advice you on the tax deduction that you can actually receive. Now a key thing is ensure that the quantity surveyor is a registered with a tax agent, because by providing you that advice, that tax deduction amount, they’re actually giving tax advice. They’re now required to be registered tax agents.
Borrowing costs is another thing that comes with your loan. We’ll be giving more tips away in the coming weeks regarding these items, so stay tuned in.
Having said that, by having depreciation, borrowing costs and other non-cash expenses, what you’re effectively doing is you’re increasing the amount of expenses on your property. Now if you were to have a cash flow positive or a cash neutral property with these non-cash expenses, that will provide you a negatively-geared property without you having to pay out of your pocket.
Now what do I mean by cash flow positive or cash flow neutral? What I mean by that is that the dollar amount you pay up for owning that property does not exceed the dollar amount that you receive back in terms of rental income or what have you. So that’s something to keep in mind.
Now that’s a key thing to think about in terms of accumulating future wealth. So remember this, you want a cash flow neutral or cash flow positive property, but a tax negatively geared property so that you can make the most out of your tax deductions.
Now why do we recommend cash flow neutral or cash flow positive? Now, why we recommend that is the most difficult thing that people find in getting a property is trying to accumulate money for the deposit. That is what gets people stumped, having enough money for the deposit. Now, if your property is cash flow positive or cash flow neutral, it’s basically paying off itself. Give it some time, if it isn’t paying off itself, give it some time, the rent will increase to hopefully start getting it to cash flow positive/cash flow neutral, or you can pay off the loan or pay off certain expenses to bring it to that point.
Now, by having a cash flow neutral/cash flow positive, it’s paying off itself, you’re then able to put your salary or wages or your income into accumulating further money for the deposit of the next property. Now by doing that, you can accumulate property faster.
For example, I’ve had clients who have had properties where they’re spending $10,000 to $15,000 out of their pocket to keep the property in the intention, with the hope of keeping it negatively geared. Now we’ve worked out a strategy to bring them down, make sure that they are cash flow neutral, so that they’re not wasting money. Because by spending $10, 000 to $15,000 on this property they’re unfortunately, losing about $50,000 to $75,000 over the next five years. They could have used that money as a deposit on their next house.
Now if you have a cash flow positive property, you need to concentrate on saving up your deposit. Depending on how good and how keen you are as an investor, people can have a deposit saved up within three years. So you save up your deposit for the next house. You then buy that next house. You get to the point where it is cash flow positive/cash flow neutral. You’ve then got two properties looking after themselves. You’re getting a tax refund, because they’re, hopefully, negatively geared, because you’ve got a good accountant such as myself from Alliance Accounting. And then what you do then is again, try to accumulate the deposit for the next one.
Now, if they’re cash flow positive, the previous two properties, what would be happening is you would be using the positive money from those first two properties to assist you in accumulating the deposit for the third one and the fourth one. So effectively, you’re first one is probably the most difficult, because you have to accumulate your deposit from your own salary and wages, then you have to pay it off or get it to a point where it is cash flow positive. Your second one’s probably a bit easier. You’ve had a bit more experience. Your third and fourth should be a lot easier, because if the first two are cash flow positive, you’re then using that to buy your third and fourth property.
That’s our tip for today. We hope you’ve enjoyed our tip. We’ve seen clients who have gone from no properties to five or six properties in a period of eight to ten years. It is possible. These guys aren’t millionaires. They’re not rich. They earn, for example, $70,000-salaries. They just have their mind straight. They’ve got a good strategy. They got a good accountant. And basically, you can basically do that if you put your mind to it.
That’s George Germanos from Alliance Accounting. Please subscribe to our videos on YouTube, search Alliance Accounting. And if you enjoyed this tip, please let us know. Thank you.