Hey Bubba my 2 cents
• Properties through these seminars are are usually overpriced, don't believe what they say up front.
• Do your own price check of the area first
• Anyone who says do it just for the tax breaks without making it clear of the other risks – run a mile, investing is about making a profit first, tax breaks second
• Investing in property is more risky than people would have you believe, it’s not set and forget and you need to be very involved in the investment and the market to be sure you are on the right track.
Negative gearing works like this:
• You have purchased an investment where the expenses are higher than the income it brings in.
• So let's say that the annual income is $15,000 and the expenses are $20,000,
• Makes you out of pocket for $5,000 in the year (approx $100 per week)
• The $5,000 is claimable as a loss in your tax return and you get Some, Not All of the 5 grand back in your tax refund, depending on your tax rate
• So every year that you are negatively geared, regardless of the tax break, you are still out of pocket because your investment is making a loss. Especially if the investment loan is “interest only”, because you are not paying off the loan, just maintaining it.
When do you make a profit from a negatively geared investment?
You can only make a profit in 2 ways,
1. if the income eventually becomes higher than the expenses, or,
2. when you sell.
• If your loan is “interest only” For the income to to be higher than the expenses, you need higher rental income, or reduced costs. Will that happen? Not in the short term and maybe not even in the long term as history has shown.
• If you are paying off the investment on a Principal & Interest (P&I) loan then at some point you will be positively geared and making money, you can start to recoup the loss from the early years.
• Selling – to make money on the sale, let’s say in 10 years, then you need to make enough profit to cover the losses from each year of ownership (so that’s abut $50,000) plus the costs of starting up the investment (stamp duty, loan costs, legal fees) plus the disposal costs (agents fees, bank fees, legal fees) plus 50% capital gains tax and phew fingers crossed we don’t have another GFC in the meantime!
Cheers!
