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Basic Negative Gearing and Understanding and basic cash flow model is
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Basic Negative Gearingunderstanding cash flow
Investment Director – Marcus Westnedge
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Major Capital City Land Based Asset Returns
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year of pur-
chase
5 years 10 years
15 years
$-
$20,000.00
$40,000.00
$60,000.00
$80,000.00
$100,000.00
$120,000.00
$140,000.00
$160,000.00
Gearing Position
Current Debt Sevicing Rental Return Capital growth
Capi
tal V
alue
Purchase Price of $400,000
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Equity What is the equity position? PV – PD = Equity Position Rents Rental Per YearPP Purchase Price PV Present ValuePD Present Debt
PY Purchase year
Purchase Price of $400,000
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Equity $38,000
Rents $430 p/w x 52 weeks = $22,360
PP $400,000 (2010)
PV $430,000 (2013)
PD $392,000 x (Interest Rate) 7% = $27,440 i/o
PY 2010
Purchase Price of $400,000
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Equity $38,000
Rents $430 p/w x 52 weeks = $22,360
PP $400,000 (2010)
PV $430,000 (2013)
PD $392,000 x (Interest Rate) 7% = $27,440 i/o Note# Running costs ( Management fees, Council rates, Water rates, Insurance &
maintenance.
+ $6,000 (Running Cost) = Total outgoing $33,440
PY 2010
Purchase Price of $400,000
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Equity $38,000
Rents $430 p/w x 52 weeks = $22,360
PP $400,000 (2010)
PV $430,000 (2013)
PD $392,000 x (Interest Rate) 7% = $27,440 i/o Note# Running costs ( Management fees, Council rates, Water rates, Insurance & maintenance.
+ $6,000 (Running Cost) = Total outgoing $33,440$22,360 (rents) - $33,440 (total out) = $11,080+ Tax Benefits (average $70,000 income) $8,000
Your Cost -$11,080 (negative gearing Short fall) +$8,000 (tax) = $3,080
$59 p/w
PY 2010
Purchase Price $400,000
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Kitchen
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Living / Dinning Area
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Alfresco
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