expert-q-a

Investors ask: Negative gearing

Q. I have two properties that are slightly negatively geared and I’m struggling to see the purpose of the properties. Should I look to be cash flow positive of keep going and wait for capital growth?

A. Being too negatively geared can certainly put your portfolio out of shape. If your properties are in Sydney, Perth or Brisbane, it’s very plausible your portfolio is going through rental growth at the moment. Often this can be followed by capital growth, so the realisation of your goals may take effect.

In truth, most people fail at real estate; not many get to a level of ownership whereby they pay little tax, have a rising portfolio and create real wealth, as they become disillusioned with the short-term effects of property. To get there, according to the ATO, you need to own around six properties in diverse locations. So you’re actually one third of the way there!

I urge you to keep investing and to not slow down. Perhaps it’s time to sit down with a property strategies and redo your goals. A strategist should be able to discuss your properties, and ensure you’re not holding poor performing real estate. A good coach or strategist can help connect you with some powerful ideas.

Here are a few ideas of my own: consider balancing your portfolio with a high cash flow property; tough it out and wait for the market to rebound; sell your weakest performing property; reduce some debt on the properties using debt reduction strategies; or find ways to increase your rents to boost your cash flow.

Sam Saggers, CEO, Positive Real Estate

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