Investors urged to focus on cash profit
As the tax net on claiming property losses tightens, the Property Investors’ Federation is urging investors to aim for properties that make a cash profit.
At the federation’s conference held last weekend in Blenheim, president Martin Evans advised members to reduce their debt and to forget about looking for capital gain at this stage in the property cycle.
He said people need to avoid buying properties ‘‘where they’re topping up by $200 a week and then hoping that in time it will become cashflow positive when they’ve paid the mortgage off’’.
‘‘They really need to be looking at properties that are returning a cashflow right from day one.’’
Opportunities to buy cashflowpositive properties are beginning to emerge, as the downturn in the property market forces people who need to sell to lower their prices: ‘‘It’s a buyer’s market . . . Buyers are offering lower prices because they’re setting their limits lower so their highest price will be showing a return.’’
In his hometown of Christchurch, Mr Evans said the earthquake has created some unusual dynamics.
‘‘In Christchurch there will be opportunities because there will be some suburbs where owners won’t want to own houses and investors might see that as an opportunity to put tenants in those areas.’’
A cashflow-positive property could still run at a loss if it earned a tax rebate, and investors should factor that in when weighing up a property’s earning potential.
But if the Government takes away investors’ ability to claim rental losses, that would truly hurt the sector, he said. Although tens of thousands of property investors use LAQCs (Loss Attributing Qualifying Companies) now, they are destined to die out: ‘‘I think they’ll become a thing of the past.’’