I have enough saving to buy an IP in cash. However the agent is asking me to go for negative gearing to help to cut tax. I end up with the saving still in the bank and own the bank a lot of money at the same time. Which does not seems to make sense to me.
So I end up very confuse. Can somebody tell me why that make good investing sense?
If it is wrong, what should I be doing? Any advice would be appreciated.
it depends on the risk profile you are willing to accept,
I believe it is better to leverage a certain amount of your portfoilio to maximise your growth,… for eample
If you bought a house for $100,000 and it went up by 10% you have made $10,000.
how ever if you used the $100,000 as a deposit to by $1,000,000 of property and it went up by 10% then you have made $100,000,…… pretty much doubling your money.
other than that sitting your cash in the bank is not a wise move longterm,…. the capital is eroded by inflation and you have to pay tax on you interest every year,…..
where as if you borrow to invest then it is the banks money that is eroded by inflation because when you eventually have to pay the loan back you will actuall be paying it back in dollars that are worth less due to inflation,….. and any capital growth is 50% tax free and you don't have to pay the tax on it till you sell so the earnings are effectivly compounded for years before you have to eventually sell,… where as with cash in bank you pay tax on 100% of the interst every year.
I would suggest to seek financial adviser advice and tax accountant. NOT YOUR REALESTATE.
Speak to your financial advisor/accountant as above. Consider that you use only half of your money to buy, the other half to sit in an off set account (to minimise your interest paid). Depending upon your tax situation you may enjoy tax benefits as well.
The only reason to borrow to buy would be so that you could afford a few more properties. I think it would be pointless to have, say, $300,000 sitting in an ING account earning 7% while you borrow $300,000 from ING at 9%. It may only work is you have a non-working spouse who could earn interest on your money and pay little tax.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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