The worst property investment advice

I received a phone call from a client a while back that made me seriously grumpy.

This investor, a young woman, told me she wanted my help to secure her next investment property.

“All I know is that it should be negatively geared,” she said, “because my accountant told me I’m paying too much tax.”

This got my attention right away, because if you’ve ever read my blogs or picked up any of my books you’ll know that I dislike the idea of investing in property solely for tax reasons.

Think about it…

What is your main goal as a property investor? Do you invest in a huge asset worth hundreds of thousands of dollars to save tax? Or do you invest to create substantial wealth for your future?

I sure hope you’re nodding along to the second option!

The way I see it, the whole point of investing in real estate is to create significant wealth – any tax bonuses should be viewed as just that, a bonus!

I mean, what happens if your situation changes and you lose your job, therefore the tax benefits no longer apply to you? Your investment is far less attractive and you may have a financial mess on your hands…

But, back to the story...

So my client had been advised to invest in a negatively-geared property to reduce her tax. I asked what her income was, expecting a high figure and she told me she earned… $80,000.

She also told me her partner wasn’t working, so they were scratching to make ends meet.

And somehow, her accountant thought it was a good idea to add another expense to her monthly budget!

Frankly, sometimes I am just gobsmacked by the stupidity of the advice that some supposedly “experienced professionals” hand out these days.

On a salary of $80,000, this client’s tax rate isn’t very high – certainly not high enough to justify a negatively-geared investment purely for tax-saving purposes.

In her situation, it made much more sense to buy a positively-geared property as her first investment.

Sure, she’d be required to pay a little extra tax on her cash-flow profits – but she would also have some additional income to help pay the bills and make ends meet every month!

Investing in negatively-geared property certainly has its place in many investors’ portfolios, but it’s not the only way to go.

When you’re planning your next property investment, you need to know your goals and work out exactly what you want to achieve…

• Not based on advice from other people that doesn’t make sense…
• Not based on following the same steps that your neighbour or brother followed…
• Not based on the ‘latest and greatest’ hotspot location that is being touted in the media…

But based on your own personal situation, your financial position, your own risk profile and your own goals for the future.

That is the only way I know to make smart financial decisions that will set you up for a profitable retirement funded through investing in real estate.