Is Negative Gearing for You?

Buying and negatively gearing a Commercial investment property is not forever in one — particularly, with interest rates on the rise.

And if you already have high personal debt … adding to that wouldn’t be a smart move on your part.

Make Borrowing just one of your Tools

Negative Gearing

Negative Gearing

Any gearing you decide to take on, should be viewed as part of your overall strategy — and not there simply to minimise your tax bill.

If you stop and do the maths, you quickly discover the more you borrow … the greater the percentage gain, on the equity you actually invest.

However, if you make an error of judgement in what you purchase (or things don’t work out just as you had expected )… then you also stand to make a greater percentage loss.

Prudently used, borrowing can be a great investment tool.

With the proper advice, you can acquire far more property using the same initial equity. And therefore, you can accelerate your overall return.

h3. But How Much is Enough?

My preference would be to see you only borrow to the point where the property is cash flow “neutral” — at least achieving that, by Year 2.

Cash Benefits

Cash Benefits

And if you have bought the right property, then your Depreciation allowances will provide you with the tax relief you are looking for — without any further cash outlay.

For more involved properties, what I generally do for clients is prepare a 3-4 year projected cash flow on an after-tax basis.

That will then give you a fairly good idea of what to expect down the track; and help to avoid any surprises.

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