What are the Pros and Cons of Negative Gearing?
- Thread starter noodles
- Start date
What's the pros and cons or losing money each week?
Isn't CG where profit comes from?
Noodles, think of yourself as a little kid again. Mum has trusted you with $5 to run down to the shops to buy 2L of milk. Half-way to the shops, you dig your hand into your pocket to discover that the fiver fell out somewhere between home and the playground. Hmm empty feeling in the stomach.
Then, as you retrace your steps, you find a $2 coin. It might make you feel better but you still can't get milk.
That's NG in a nutshell - you lose money and the fairy god-mother gives you some back.
Then, as you retrace your steps, you find a $2 coin. It might make you feel better but you still can't get milk.
That's NG in a nutshell - you lose money and the fairy god-mother gives you some back.
It's not a question of the pros and cons of negative gearing. Negative gearing is not a strategy, it's a set of circumstances.
The better way to go about it is to look at the property you're acquiring and ask yourself how does this fit into my strategy that gets me ahead? The property may be loosing money whilst holding it, but it might also be expecting significant growth, in value or in rental income. My may be willing to take a short term loss for a longer term gain.
If a property is loosing money (negative geared) but doesn't anticipate any growth, then you simply wouldn't buy it.
The RISK inherent to negative gearing is that it can drain your cash flow. Negative gearing as a good strategy anticipates the market will increase, but there are no guarantees in life.
Don't look at pros and cons, this is very limited. Consider your overall strategy and ask yourself with each property, "How does this get me ahead?" Then consider the risks in this both in the level of the property plus your overall portfolio and greater strategy. This will help you make more sound purchasing decisions.
The better way to go about it is to look at the property you're acquiring and ask yourself how does this fit into my strategy that gets me ahead? The property may be loosing money whilst holding it, but it might also be expecting significant growth, in value or in rental income. My may be willing to take a short term loss for a longer term gain.
If a property is loosing money (negative geared) but doesn't anticipate any growth, then you simply wouldn't buy it.
The RISK inherent to negative gearing is that it can drain your cash flow. Negative gearing as a good strategy anticipates the market will increase, but there are no guarantees in life.
Don't look at pros and cons, this is very limited. Consider your overall strategy and ask yourself with each property, "How does this get me ahead?" Then consider the risks in this both in the level of the property plus your overall portfolio and greater strategy. This will help you make more sound purchasing decisions.
Yep, the real wealth/profit is generated from compounding capital appreciation.
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Pro's and Con's of Negative Gearing aren't the issue. The key issue is whether the selected investment achieves a suitable return from income and/or capital gains that is sufficiently affordable from the after tax income of the buyer/s.
All the rest results in hundreds of threads here annually.
Soccer is a simple game with 17 simple rules. Ask any player how simple it is.
All the rest results in hundreds of threads here annually.
Soccer is a simple game with 17 simple rules. Ask any player how simple it is.
You kick a ball around and aim to score. How hard is that ?
Scott - but 2l of milk is $2
DT, I don't believe in screwing the farmers the same way that the two major supermarket chains do. I believe in supporting the farmers by buying premium products not the dregs from the barrel. When you understand the supply chain, where each market segment sits and how the only way the supermarkets are able to provide goods at such a low price you will see the pressures that these conglomerates put on the manufacturers/growers to churn out a consistent basic product as the majority want cheap to fill their bellies (quality doesn't come into the equation).
If you're on a high income, you can acquire newish properties in good CG areas with high deductions.
Even if considerably negatively geared, you can still be positive cashflow after tax, requiring no holding costs for high demand properties in high growth areas, which is where the real money is made, asset accumulation.
This all allows greater leverage of money to do more and more.
Even if considerably negatively geared, you can still be positive cashflow after tax, requiring no holding costs for high demand properties in high growth areas, which is where the real money is made, asset accumulation.
This all allows greater leverage of money to do more and more.
How often have many of you bought properties for more than your max LVR? Was it to avoid negative gearing and not be out of pocket each week or are many of you still trying to use as minimal capital as possible when acquiring additional IP that aren't negatively geared?
I feel like I haven't read much about putting in more capital than necessary as a strategy. Perhaps it's for another thread too I'm ns.
I feel like I haven't read much about putting in more capital than necessary as a strategy. Perhaps it's for another thread too I'm ns.
Can you elaborate on what you mean by more than max LVR? More than max doesn't make sense as a concept
I've done purchases at 80, 88, 90 and 95 LVR, depending on the deal, with the balance (up to 105% to include purchasing costs) always coming from equity in other properties.
Can you elaborate on what you mean by more than max LVR? More than max doesn't make sense as a concept
I've done purchases at 80, 88, 90 and 95 LVR, depending on the deal, with the balance (up to 105% to include purchasing costs) always coming from equity in other properties.
Sorry, I wasn't quite sure how best to articulate my thoughts I just wanted to get them down before forgetting!
I mean if your lender said they'd loan you 90% have you ever just taken 80% in order to be geared differently? If so why?
Exactly. Amazingly it is possible to make more money on a positively geared property that isn't in a capital city provided the area its in has growth or at least potential. Know lots of people holding three heavily negative properties, up to their capacity of borrowing and not much capital growth to show or compensate for all the money ploughed in over the years. Of course they have to keep working to hold them while they wait for sufficient cg to cover selling costs and make the sale worthwhile.
Capital growth is a bonus for me, but either way I can afford to pay down debt, over the course of the loan I save thousands in interest (which may be comparable to the amount of capital gain some investors consider good). Realistically I wonder how much some investors really make after all the stamp duty, interest, loss due to never having paid any principal, and of course multiple LMI. Obviously some do really well but I wonder how many could have been better off without the negative gearing strategy.
