Negative gearing.  It’s quite popular amongst investors.  Get someone else to help pay off your mortgage and bask in the tax benefits.  And although it appears to be an easy financial win, it can, in fact, turn out to be quite the opposite.

A recent Smart Property Investment article cites 6 prime reasons why negative gearing may not be such a hot idea.  Here’s the list of drawbacks you may need to take into consideration.

 

1. It’s merely a tax outcome

It might seem like a clever strategy, but it’s really just a tax outcome.  Essentially, if you make a loss on your property, you can offset it against your taxable income – so you pay less tax.  But it’s not providing you with any extra spending money.

 

2. You absolutely lose money

A negatively geared property costs you money just to hold onto it.  It then becomes a burden rather than a viable income source.  There’s a lot more to it than simply buying a house and getting someone to rent it out.

 

3. It affects your borrowing capacity

You’re telling the banks that you’ve bought a money-eating liability.  This in turn pegs you as a debtor who is less likely to be able to meet loan repayments.  Naturally, the banks will shy away from this.

 

4. It affects your lifestyle

Negative cash flow won’t be doing your lifestyle any favours.  Nor will plain old fashioned debt.  If you’re looking to save for that holiday or eat out at a fancy restaurant or two, you’d be better off not owning property at all.

 

5. It can lure you, then trap you

It seems like a good idea at the time – buy property for a cushy income.  Then you’ll have the freedom to leave work.  But going into the red like this makes you even more reliant on your employment than ever.  If you lose that job, you’ll be left with nothing but a whopping debt.

 

6. You don’t need it to grow

Instead of relying on the possible tax offsets, you’re better off simply buying in the right location.  Acquiring property at the right time in the right place will create an easy, healthy cash flow.  This allows you to grow your income and start expanding your portfolio without going into massive debt.

 

But you don’t have to worry about any of the above pitfalls when you invest with us.  We know how, when, and where to buy to get the best returns on your investment.  Our profitable luxury dwellings in Melbourne’s top locations will leave you feeling nothing but positive.  Give us a call to find out more.