Hi Guys,
I was reading a book some time ago and it was talking about how a property investor should balance the properties they buy so some are negatively geared and some are positively geared.
Now, I would have thought you would always be better off if have the property was positively geared as this means you have money coming into your pocket. i.e. cash flow.
I realise that you have to pay tax on the profit but isn’t paying tax on a profit better than not having any profit at all, ie negatively geared?
Cheers.
All depends on your perspective. You dont pay tax on capital growth unless you actually realise that profit.
I would rather have a positived geared property with capital growth as well.
Richard Taylor | Australia's leading private lender
Well that kind of links to my next question….
Some people say that you should never sell your IP's. But how does it help one if they have 10 or 20 IP's that simply sit there and pay themsleves off with the rent received? I agree that you may not have to put extra cash into the IP's to pay them off but it doesnt mean that you have any cash to do anything with. Especially if they are not positively geared.
What's the idea here?
Never never sell usually means that you would hold onto the asset until nearer retirement and then sell the odd property here and there to pay down your debt and live off the rental income.
There are a variety of different strategies you can use but in essence you want to put yourself in a positon where rental income can replace your current PAYG income.
Richard Taylor | Australia's leading private lender
blacklab wrote:Hi Guys,Now, I would have thought you would always be better off if have the property was positively geared as this means you have money coming into your pocket. i.e. cash flow.
Cheers.
Some negatively geared property can still be cashflow positive – ie non-cash deductibles like depreciation on a new building can have a major impact on the bottom line without needing you to dip into your pocket.
Blacklab,
I think what the book probably meant was,
if you have already have some negatively geared properties, try to buy some positively geared properties to kinda balance things out and make it easier on your cashflow.
I think your reasoning in the initial post makes perfect sense.
The whole issue about +ve geared having lower capital growth is another separate debate altogether
As a general rule negative geared properties will increase in value where positive geared properties won't so much.
Nobody enforces this rule.
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