Negatively geared property is draining your money BADLY

Negative gearing is a popular strategy used by many Australian property investors, where money is made as a property appreciates in value, while income tax is saved because the property's expenses are higher than its income, and the loss can be offset against a taxpayer's other income to reduce the amount of overall income tax paid.

However, there are few problems when using negative gearing strategy:

1. It does not make sense

Any investment guaranteed to make a loss today, with only the potential of making money tomorrow (if property prices rise), does not make sense. There is no business or investing is making a loss as a way to save tax seen as a good strategy. A rule to remember is - if you only buy assets that make money, you will have no option but to make money. A negatively geared property loss money.

2. Property market does not always go up

For negative gearing to work, there must be capital growth. When the market is trending sideways or down, you will have an income loss and capital depreciation. The property market does not always go up all the time.

3. You only get partial refund from tax return

Every dollar lost is only refunded to the extent of your marginal tax rate. The rest you will have to pay from your own pocket. Assuming your property made a total loss of $5,000, of that you are getting $1,000 'refund' from tax, the balance of $4,000 must be paid from your saving. How many negatively geared properties can you afford to own? Not that many if you are earning median wage around $80,000 per year.

4. You always need a job

The amount of the tax refund is capped to the amount of tax you have paid on your other income. In order to pay for the losses generated by the negatively geared property, you have to keep working in your J.O.B. - Just Over Broke.

5. Refinancing

Advocates of negative gearing suggest the equity can be accessed via refinancing. However, this is not feasible because if you tap into the equity, the monthly repayment will increase so the negatively geared property will go further in negative. Again, you require to have a JOB to refinance and support the losses.

Negative gearing may work for people who loves their jobs and does not mind Just Over Broke, but what if one day you lost your job, you are sick and cannot work anymore? Who is going to support all these losses? You have to force to sell to realise the income loss and capital depreciation. What if you are late for your repayment? Bank foreclosure? Agents cannot sell your house? Even you sell you still owe money to the bank?

Negative gearing is to tempt us to seek a way of making money and saving tax at the same time, but there is no such opportunity exists. If you make money, expect to pay tax. Would you choose to make a loss to not to pay tax? Or make a lot of money to pay partial of it into tax? I would choose the second one 100%.

If you are seeking financial freedom, quit your job, do something you are passion about, not sitting in the box working for someone you don't like for 9-5 (or even more), spend more time with your love ones, then negative gearing strategy is not what you are looking for.

If you are holding a negatively geared property, we can help you to change your situation FOR FREE, what we ask is just please be open to us and be flexible, we can help you to take away your mortgage stress and slowly become financial free. Contact us today for a FREE CONSULTATION.