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Chapter 1: What changes have occurred in property investing in Australia?
Welcome to How Do They Afford That, the podcast that peeks into the financial lives of everyday Australians. I'm Michael Thompson. I'm an author and the co-host of the business news podcast, Fear and Greed.
As always, I'm with Canna Campbell, financial planner and founder of Sugar Mama TV, the financial literacy platform covering YouTube and podcasts, obviously like this one, and Instagram and threads and TikTok and books like our upcoming book, 12 Months to Financial Freedom. Hello, Canna.
Good morning. How are you?
I'm going very well, a very topical episode today. Yeah. Property investing, which has changed a little bit this year, hasn't it? Just a tad. Just a wee bit. When people talk about property investing in Australia, the conversation has always gone towards negative gearing, just because it has been such a key part of that landscape. right? It's not the case anymore.
It's not the case that that is the first thing that you think of. Now, the landscape for property investment in Australia has changed. So today, I want to talk to you, obviously, that's why we're in the studio together, to get an idea basically of how you can still make property investing work for you.
And I suspect, got a little hunch, that it might have something to do with passive income rather than the negative gearing and the tax incentives.
We love our passive income.
We certainly do. Okay, let's get into it. And, of course, this is not financial advice. No, none whatsoever. So if you hear something here that you go, oh, okay, all right, that makes a lot of sense to me, I might look into that, speak to a professional. Go and see a financial planner who can give you some advice that is tailored to your circumstances. Property investing.
Is it still a valid way to build wealth in Australia?
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Chapter 2: How has negative gearing impacted property investment strategies?
Where is that tipping point between a property that has been essentially negatively geared or where you might be losing money on it because the amount that you're paying to the bank in interest is more than what you are bringing in in rent?
When does that then flip to become positively geared when you actually start to create revenue and actually start to generate passive income from that property?
So this is the exciting part. It really boils down to you as the investor and your situation and what you're capable of doing and what you ultimately want to do.
If you have a property that's negatively geared and you can obviously start working on that strategy to pay it down yourself, you can start making extra payments to create more equity in that loan, pay down the loan so that more and more of the rent that's coming in isn't just servicing the interest, it's starting to actually pay down the principal. That's when we say it's cash flow positive.
or at the very least cash flow neutral. So that is when the rent coming in equals the cost of the interest. So that property that's rented out for $50,000 a year, I start slowly chipping away at that million dollar loan, for example. The cost of that interest is no longer $70,000.
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Chapter 3: What are the new rules regarding negative gearing for property investors?
It's say $50,000. It's breaking even. That is what I'm talking about here has been cash flow neutral. If I want to make it cash flow positive, obviously I need to keep chipping away at Now, how long that takes or how much money that's going to involve is obviously boils down to what's the size of the loan? What's the interest you're paying? What's the terms and conditions? Is it a 25-year loan?
Is it a 30-year loan? Is it principal and interest? All these sorts of things come in. And this is where the big thing with these huge changes is more than ever before, people are going to be leaning on interest. financial planners, accountants, and mortgage brokers for really good quality advice as to what to do. And it's not going to be set and forget.
There's going to be tweaks and changes to the overall strategy to get them to where they want to be. And it's going to force people to really look at their goals here. And a lot of people are going to have to adjust their goals to perhaps being now more passive income driven.
Okay, there's a lot more that I want to discuss. I want to kind of find out what risks people perhaps underestimate and also a little bit more about the potential and who else might be suited to property investing in this new world of investing back in a moment. Rasta.
Kaikki kesään yllättävän edullisesti.
We've been talking about property investing for passive income now that negative gearing is no longer the feature of the investing landscape that it was. Interest-only loans. You mentioned just before about whether you're paying principal plus interest on your loan.
Are interest-only loans going to be a thing of the past now that there isn't this tax incentive really to just be focusing on the interest?
It's a very fluid situation, and the banks seem to be bouncing around with their rates, with their rules and regulations that they have to adhere to. I mean, it's quite complicated. It's quite political and economic, so I won't go into too much detail. But it's definitely going to be harder to get these types of loans. But it's really going to boil down to the rate that you're able to secure.
Yeah.
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