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Positive vs. Negative Analysis

Here are three copies of the same spreadsheet under different scenarios. A property worth $65,000 is being considered, with a loan being taken out to cover the non-cash components at 8% interest-only.

The first scenario is a typical positively geared one - a large enough deposit is being taken out to return a positive return from year 1, given a rental stream of $100 / wk. The second scenario is a typical negatively geared one - a 10% deposit is used, and as a result the initial returns are negative, and are tax-deductable, for a few years until the property "turns positive". The last scenario is similar to the previous two, except the rental stream is $125 / wk while the capital growth is correspondingly lower, and gives much better returns that either of the other scenarios.

Download the original Excel spreadsheet.

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Positive Gearing Scenario

Positive                      
  House price   $65,000   Yield 8.00%          
  Rent per week   $100                
  Interest rate   8%                
  House appreciation (on CPI)   3%                
  Rent appreciation (on CPI)   2%                
  Risk-free investing (on CPI)   2%                
  Management fee   6%                
  Repair costs   4%                
  # weeks vacany / yr   2                
  Deposit   $9,000                
  Marg. Tax Rate   43%                
                       
  IO Loan payments   $4,480                
                       
Year House value Annual rent Costs Profit/Loss Invested Profits     20yr return $46,749.74 ROI 519.44%
1 $65,000.00 $5,000.00 $4,980.00 $20.00 $20.00     25yr return $58,530.81 ROI 650.34%
2 $66,950.00 $5,100.00 $4,990.00 $110.00 $130.40            
3 $68,958.50 $5,202.00 $5,000.20 $201.80 $334.81            
4 $71,027.26 $5,306.04 $5,010.60 $295.44 $636.94            
5 $73,158.07 $5,412.16 $5,021.22 $390.94 $1,040.62            
6 $75,352.81 $5,520.40 $5,032.04 $488.36 $1,549.80            
7 $77,613.40 $5,630.81 $5,043.08 $587.73 $2,168.53            
8 $79,941.80 $5,743.43 $5,054.34 $689.09 $2,900.98            
9 $82,340.06 $5,858.30 $5,065.83 $792.47 $3,751.47            
10 $84,810.26 $5,975.46 $5,077.55 $897.92 $4,724.42            
11 $87,354.56 $6,094.97 $5,089.50 $1,005.47 $5,824.38            
12 $89,975.20 $6,216.87 $5,101.69 $1,115.18 $7,056.05            
13 $92,674.46 $6,341.21 $5,114.12 $1,227.09 $8,424.26            
14 $95,454.69 $6,468.03 $5,126.80 $1,341.23 $9,933.97            
15 $98,318.33 $6,597.39 $5,139.74 $1,457.65 $11,590.31            
16 $101,267.88 $6,729.34 $5,152.93 $1,576.41 $13,398.52            
17 $104,305.92 $6,863.93 $5,166.39 $1,697.54 $15,364.03            
18 $107,435.10 $7,001.21 $5,180.12 $1,821.09 $17,492.40            
19 $110,658.15 $7,141.23 $5,194.12 $1,947.11 $19,789.35            
20 $113,977.89 $7,284.06 $5,208.41 $2,075.65 $22,260.79            
21 $101,267.88 $6,729.34 $5,152.93 $1,576.41 $24,282.41            
22 $104,305.92 $6,863.93 $5,166.39 $1,697.54 $26,465.60            
23 $107,435.10 $7,001.21 $5,180.12 $1,821.09 $28,815.99            
24 $110,658.15 $7,141.23 $5,194.12 $1,947.11 $31,339.42            
25 $113,977.89 $7,284.06 $5,208.41 $2,075.65 $34,041.86            

Negative Gearing Scenario

Negative                      
  House price   $65,000   Yield 8.00%          
  Rent per week   $100                
  Interest rate   8%                
  House appreciation (on CPI)   3%                
  Rent appreciation (on CPI)   2%                
  Risk-free investing (on CPI)   2%                
  Management fee   6%                
  Repair costs   4%                
  # weeks vacany / yr   2                
  Deposit   $6,500   Saved $2500 here            
  Marg. Tax Rate   43%                
                       
  IO Loan payments   $4,680           Lost $4000 here    
                       
Year House value Annual rent Costs Profit/Loss Invested Profits     20yr return $42,058.29 ROI 647.05%
1 $65,000.00 $5,000.00 $5,180.00 -$102.60 -$102.60     25yr return $52,310.27 ROI 804.77%
2 $66,950.00 $5,100.00 $5,190.00 -$51.30 -$155.95            
3 $68,958.50 $5,202.00 $5,200.20 $1.80 -$157.27            
4 $71,027.26 $5,306.04 $5,210.60 $95.44 -$64.98            
5 $73,158.07 $5,412.16 $5,221.22 $190.94 $124.66            
6 $75,352.81 $5,520.40 $5,232.04 $288.36 $415.52            
7 $77,613.40 $5,630.81 $5,243.08 $387.73 $811.56            
8 $79,941.80 $5,743.43 $5,254.34 $489.09 $1,316.88            
9 $82,340.06 $5,858.30 $5,265.83 $592.47 $1,935.68            
10 $84,810.26 $5,975.46 $5,277.55 $697.92 $2,672.31            
11 $87,354.56 $6,094.97 $5,289.50 $805.47 $3,531.24            
12 $89,975.20 $6,216.87 $5,301.69 $915.18 $4,517.04            
13 $92,674.46 $6,341.21 $5,314.12 $1,027.09 $5,634.47            
14 $95,454.69 $6,468.03 $5,326.80 $1,141.23 $6,888.39            
15 $98,318.33 $6,597.39 $5,339.74 $1,257.65 $8,283.82            
16 $101,267.88 $6,729.34 $5,352.93 $1,376.41 $9,825.90            
17 $104,305.92 $6,863.93 $5,366.39 $1,497.54 $11,519.95            
18 $107,435.10 $7,001.21 $5,380.12 $1,621.09 $13,371.44            
19 $110,658.15 $7,141.23 $5,394.12 $1,747.11 $15,385.98            
20 $113,977.89 $7,284.06 $5,408.41 $1,875.65 $17,569.35            
21 $101,267.88 $6,729.34 $5,352.93 $1,376.41 $19,297.14            
22 $104,305.92 $6,863.93 $5,366.39 $1,497.54 $21,180.62            
23 $107,435.10 $7,001.21 $5,380.12 $1,621.09 $23,225.32            
24 $110,658.15 $7,141.23 $5,394.12 $1,747.11 $25,436.93            
25 $113,977.89 $7,284.06 $5,408.41 $1,875.65 $27,821.32            

"Good Deal" Scenario

Good Deal                      
  House price   $65,000   Yield 10.00%   Increased 2% here      
  Rent per week   $125                
  Interest rate   8%                
  House appreciation (on CPI)   1%   Reduced 2% here            
  Rent appreciation (on CPI)   2%                
  Risk-free investing (on CPI)   2%                
  Management fee   6%                
  Repair costs   4%                
  # weeks vacany / yr   2                
  Deposit   $9,000                
  Marg. Tax Rate   43%                
                       
  IO Loan payments   $4,480           Gained $20,000 here    
                       
Year House value Annual rent Costs Profit/Loss Invested Profits     20yr return $61,802.58 ROI 686.70%
1 $65,000.00 $6,250.00 $5,105.00 $1,145.00 $1,145.00     25yr return $85,189.80 ROI 946.55%
2 $65,650.00 $6,375.00 $5,117.50 $1,257.50 $2,425.40            
3 $66,306.50 $6,502.50 $5,130.25 $1,372.25 $3,846.16            
4 $66,969.57 $6,632.55 $5,143.26 $1,489.30 $5,412.38            
5 $67,639.26 $6,765.20 $5,156.52 $1,608.68 $7,129.30            
6 $68,315.65 $6,900.51 $5,170.05 $1,730.45 $9,002.35            
7 $68,998.81 $7,038.52 $5,183.85 $1,854.66 $11,037.06            
8 $69,688.80 $7,179.29 $5,197.93 $1,981.36 $13,239.15            
9 $70,385.69 $7,322.87 $5,212.29 $2,110.58 $15,614.52            
10 $71,089.54 $7,469.33 $5,226.93 $2,242.40 $18,169.21            
11 $71,800.44 $7,618.72 $5,241.87 $2,376.84 $20,909.43            
12 $72,518.44 $7,771.09 $5,257.11 $2,513.98 $23,841.60            
13 $73,243.63 $7,926.51 $5,272.65 $2,653.86 $26,972.30            
14 $73,976.06 $8,085.04 $5,288.50 $2,796.54 $30,308.28            
15 $74,715.82 $8,246.74 $5,304.67 $2,942.07 $33,856.51            
16 $75,462.98 $8,411.68 $5,321.17 $3,090.51 $37,624.15            
17 $76,217.61 $8,579.91 $5,337.99 $3,241.92 $41,618.56            
18 $76,979.79 $8,751.51 $5,355.15 $3,396.36 $45,847.28            
19 $77,749.59 $8,926.54 $5,372.65 $3,553.89 $50,318.12            
20 $78,527.08 $9,105.07 $5,390.51 $3,714.56 $55,039.04            
21 $75,462.98 $8,411.68 $5,321.17 $3,090.51 $59,230.33            
22 $76,217.61 $8,579.91 $5,337.99 $3,241.92 $63,656.86            
23 $76,979.79 $8,751.51 $5,355.15 $3,396.36 $68,326.35            
24 $77,749.59 $8,926.54 $5,372.65 $3,553.89 $73,246.76            
25 $78,527.08 $9,105.07 $5,390.51 $3,714.56 $78,426.26            

 




This site is maintained by Andrew Scott and was last updated on 19h October, 2003.