The average property investor has one, maybe two properties and they’re both negatively geared.
This means the money you make renting those properties out doesn’t cover the expenses associated with holding that property – the interest on the loan, the property management, the repairs and maintenance, the insurance, rates and strata levies.
Sure, you can claim these expenses on your annual tax return, but you’ve needed to work hard to pay those bills in the first place. Negatively-geared property does not put money in your pocket on a week-to-week basis.
I did 20 years of buy and hold negative gearing and it was a VERY slow and cumbersome way to create wealth. You work, you buy a property, you hold that property until you have enough equity to go again. Meanwhile you work some more, and eventually you buy another property. You hold.
You get the picture.
I was on my way to retirement when I got divorced and found myself right back at square one with 20 years of hard work down the drain. I had to start all over again, only this time I didn’t want to wait another two decades to reach retirement.
I knew there had to be another way, a faster way.
And for me, it boiled down to Property Development and the positive cashflow it could help me generate.
I learnt to accentuate the positive and eliminate the negative.
For most of us, the reason we shift from being an average property investor to property development is to chase our goal of financial freedom. And my definition of financial freedom is creating enough passive income to cover all of my expenses so that my day job is optional.
So what is 'passive income'?
It’s income you earn with minimal effort on your part. For a Property Developer, it’s typically in the form of rental income. Both negative and positively-geared property generate passive income, but it’s the latter that covers our costs and lines our pockets with cash.
As Property Developers, we’re clearly manufacturing our own profits by building and then keeping stock. In my favourite scenario, we build six townhouses or apartments, sell five and keep one. Ideally we own it outright, but at the very least we want enough cashflow to cover our costs.
I describe this as the property washing its own face – the rent it produces is paying for the expenses it generates so it doesn’t cost us anything to hold. Of course the more profit we can create the more likely it is that a property will pay for itself.
Wholesale vs Retail
Hopefully you can see that a property acquired by doing your own property development differs from a positively geared property that you buy “retail”.
You see, there’s a valid perception that to find a positively-geared property you often need to look in regional rather than urban areas, and that they sometimes attract lower socio-economic tenants who may take less care of your property.
These properties may also be in postcodes that are blacklisted by lenders, which means securing finance may be difficult.
These drawbacks are null and void when you’re the Property Developer, because you’ll be building a quality product at wholesale prices in neighbourhoods with proven demand.
Stacking Strategies
If you can stack multiple development strategies, you can fast track your bid for financial freedom.
Basically you’ll be layering your profits over just one set of acquisition costs, one set of holding costs and one set of sales commissions.
You’ll still need to master your primary development strategy. You don’t want to be swapping and changing, because otherwise you become a ‘jack of all trades and master of none’.
And what we want you to do is become an expert in that one strategy, learn one set of rules and start to apply them very efficiently and very effectively in the areas that you choose.
If you do that well, that underlying development strategy will pay dividends on its own. However, you may be able to get potentially twice the uplift from the property by stacking property development strategies.
Which strategies you choose to stack will depend on what it is you're trying to achieve, the idiosyncrasies of your site, what the demographic is and what infrastructure and amenities are nearby.
Let me give you some examples…
If your site is located within walking distance of a University, you could rent your property by the room to generate a higher return. If it’s an inner-city dwelling you might consider furnishing your property for the executive leasing market. If it’s an area popular with multi-generational families you could implement a dual-key strategy – either a duplex, a self-contained apartment within the main dwelling or a separate granny flat.
Building rooming houses or short-stay accommodation near a Hospital are other ways to boost your cash flow from a single property.
Each of these development strategies facilitates multiple income streams or above-market returns from one property. And, they’re all proven methods to lock-in and amplify a positively geared position.
So, You Want To Accentuate The Positive, Eliminate The Negative?
Leave the negative gearing behind and embrace cash flow.
Yes, you’ll have to pay tax but I’d much rather pay tax on a dollar I earnt than try to beg for some money back for cash I’ve already outlaid.
This means the money you make renting those properties out doesn’t cover the expenses associated with holding that property – the interest on the loan, the property management, the repairs and maintenance, the insurance, rates and strata levies.
Sure, you can claim these expenses on your annual tax return, but you’ve needed to work hard to pay those bills in the first place. Negatively-geared property does not put money in your pocket on a week-to-week basis.
I did 20 years of buy and hold negative gearing and it was a VERY slow and cumbersome way to create wealth. You work, you buy a property, you hold that property until you have enough equity to go again. Meanwhile you work some more, and eventually you buy another property. You hold.
You get the picture.
I was on my way to retirement when I got divorced and found myself right back at square one with 20 years of hard work down the drain. I had to start all over again, only this time I didn’t want to wait another two decades to reach retirement.
I knew there had to be another way, a faster way.
And for me, it boiled down to Property Development and the positive cashflow it could help me generate.
I learnt to accentuate the positive and eliminate the negative.
For most of us, the reason we shift from being an average property investor to property development is to chase our goal of financial freedom. And my definition of financial freedom is creating enough passive income to cover all of my expenses so that my day job is optional.
So what is 'passive income'?
It’s income you earn with minimal effort on your part. For a Property Developer, it’s typically in the form of rental income. Both negative and positively-geared property generate passive income, but it’s the latter that covers our costs and lines our pockets with cash.
As Property Developers, we’re clearly manufacturing our own profits by building and then keeping stock. In my favourite scenario, we build six townhouses or apartments, sell five and keep one. Ideally we own it outright, but at the very least we want enough cashflow to cover our costs.
I describe this as the property washing its own face – the rent it produces is paying for the expenses it generates so it doesn’t cost us anything to hold. Of course the more profit we can create the more likely it is that a property will pay for itself.
Wholesale vs Retail
Hopefully you can see that a property acquired by doing your own property development differs from a positively geared property that you buy “retail”.
You see, there’s a valid perception that to find a positively-geared property you often need to look in regional rather than urban areas, and that they sometimes attract lower socio-economic tenants who may take less care of your property.
These properties may also be in postcodes that are blacklisted by lenders, which means securing finance may be difficult.
These drawbacks are null and void when you’re the Property Developer, because you’ll be building a quality product at wholesale prices in neighbourhoods with proven demand.
Stacking Strategies
If you can stack multiple development strategies, you can fast track your bid for financial freedom.
Basically you’ll be layering your profits over just one set of acquisition costs, one set of holding costs and one set of sales commissions.
You’ll still need to master your primary development strategy. You don’t want to be swapping and changing, because otherwise you become a ‘jack of all trades and master of none’.
And what we want you to do is become an expert in that one strategy, learn one set of rules and start to apply them very efficiently and very effectively in the areas that you choose.
If you do that well, that underlying development strategy will pay dividends on its own. However, you may be able to get potentially twice the uplift from the property by stacking property development strategies.
Which strategies you choose to stack will depend on what it is you're trying to achieve, the idiosyncrasies of your site, what the demographic is and what infrastructure and amenities are nearby.
Let me give you some examples…If your site is located within walking distance of a University, you could rent your property by the room to generate a higher return. If it’s an inner-city dwelling you might consider furnishing your property for the executive leasing market. If it’s an area popular with multi-generational families you could implement a dual-key strategy – either a duplex, a self-contained apartment within the main dwelling or a separate granny flat.
Building rooming houses or short-stay accommodation near a Hospital are other ways to boost your cash flow from a single property.
Each of these development strategies facilitates multiple income streams or above-market returns from one property. And, they’re all proven methods to lock-in and amplify a positively geared position.
So, You Want To Accentuate The Positive, Eliminate The Negative?
Leave the negative gearing behind and embrace cash flow.
Yes, you’ll have to pay tax but I’d much rather pay tax on a dollar I earnt than try to beg for some money back for cash I’ve already outlaid.
