What’s wrong with negative gearing?
Australians have grown up with the concept of negative gearing, so much so that it is almost ingrained in the national psyche. The reason for this was that until the last couple of years there was no other way unless you bought in high risk mining towns. I’m sorry if I’m explaining very basic stuff here but negative gearing is where the rent received on an investment property falls short of meeting all the expenses associated with that property including interest, property management fees, maintenance, rates, insurance, repairs etc. Why would anyone want to make a loss on an investment? Well the reason is that the “loss” is tax deductible thereby reducing the “loss” and the investor is hoping for a capital gain on the property that far exceeds the accumulated “loss”.
The trouble with this strategy is that what happens when the expected capital gain doesn’t eventuate? The short answer is that instead of a paper loss you now make a real loss. Even if the property rises in value you don’t realise a profit until the property is sold and only if it has risen to the point that the increase in value exceeds your accumulated losses. Not only that but you are subsidising the property by having to contribute from your own funds the shortfall between rent receipts and your actual expenses.
Positive cash flow is the ONLY way to go. This is where your rent receipts actually exceed your expenses and you make a profit from day 1. Stay tuned for how to do this.
Click here to see our selection of strongly cashflow positive properties.