Investors ask: Negative gearing

Investors ask: Negative gearing

By Sam Saggers | 14 February 2014

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, PerthPerth, TAS Perth, WA 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

RELATED TERMS

Gearing

Gearing is defined as the relationship between debt and equity of a company that shows how much of its operations are financed by lenders or shareholders.

Negative gearing

Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.

Negative gearing

Negative gearing occurs when the rental income of a property is not enough to cover the total costs of managing the rental and re-paying the interest portion of the loan.

About the author

Sam Saggers

Sam Saggers

Sam Saggers is the CEO of Positive Real Estate, one of Australia's leading property investment and educational companies and highly sought-after buyers agencies. As a licensed real estate agent in every state of Australia, Sam's passion is assisting people to invest successfully in the Australian property market. He has personally brokered over 1,600 property deals in his fifteen-year career and has helped to educate more than 5,000 people in real estate principles through Positive Real Estate. Sam is the co-author of Think and Grow Rich In Property by Stuart Zadel and How to be in Debt for Millions and Be Happy About itand is currently in the process of writing another book on investing in property in Australia. Sam Saggers is also a keynote speaker on real estate and has recently founded the Property Wholesales... Read more



Investors ask: Negative gearing
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