High income, need to negative gear, First home buyer

Personally I'm not too fond of the idea of negative gearing, and losing money, but I suppose it could work if you do your due diligence before buying the property and the growth of the property offsets the losses you incur for holding onto the property. Ultimately it depends on your goals and what time frame you are looking at.

You don't need to cut tax. Tax just means you made money. Its not evil or anything.

If you negative gear, it should be because you think the property is worth it in some way and any tax refunds is just handy to have, not the reason for the deal.

Further to that, what if with your negative gearing strategy, you have a couple of negative properties and you lose your job. Unlikely, but in the off chance it happens. Then what? Risky stuff that negative gearing.

Also, in 1987, lots of investors lost a lot of money and value in their properties when the US government decided to scrap negative gearing. Funnily enough, Gillard is looking into doing the same.

Hope that's enough reason to stay away from NG.

Cheers and good luck.

Doesn't matter how you look at it, negative gearing involves making a loss.  Fab.  Love making a loss – not.

People on this site are obviously very anti-NG, but bear in mind, it has worked for people before. It is a form of speculation though. You're intentionally taking a loss on the hope that property prices rise and you make your profit from capital growth. You need to look at the market though. Its flat right now. Some people may anticipate a slow 6-12 months before it all takes off again (bulls), and some that we might be in for years of flat prices (bears). Some even anticipate a crash. So you need to decide what you think is going to happen, and then…well basically you gamble on being right. So, the simple (but not so easy) solution is to buy positive geared property. Then it doesn't really matter, you make money anyway. One thought, is that if you think rents will continue to increase,  then maybe a negatively geared property that you expect to fairly quickly turn around into a neutrally geared property could work.

There are heaps of options available. Most of which require more active participation than NG, but lots of people make it work. I do feel theres a tendency to make it all sound easier than it is. As a newcomer to trying to find positive (or at least neutral) geared property, its a lot more complicated.

A fairly common approach is that of "adding value". For instance, if yields were 5% (an easy number that basically equates to weekly rents being purchase price/1000), then if you can buy a $200k "shack" and turn it into a $300k delight, then you've turned it from earning $200p/w rent, into $300p/w rent. Obviously the key is to spend a lot less than $100k doing so.

Another option might be if that "shack" is on a big piece of land, you could subdivide and sell off some of the land. For instance if you bought that $200k shack and sold off the back half for $80k then the front half (with the house) has cost you $120k (obviously way simplified numbers ignoring costs/etc), which maybe you can rent for $160 p/w.

Or you could build yourself on the back getting a second house for cost price.

Or sell both, and buy something with a big cash deposit from the profits. The more deposit, the less interest.

You don't have to buy a cheap shack. My mate is constantly buying properties in Sydney that are returning 10 to 12%.

My view is that you shouldn't be worried about the tax side, but about making money. It would be ok to buy something negative geared, but only if it is going to jump in value. There is no point in buying any old unit just with the hope that it will go up. That is just wishful thinking! You need something special. And the higher the rent the better. Also don't just buy something because it is postiive cashflow. You need something that will rise or you will end up losing money.

Tax can be reduced in other ways and will get easier as you get wealthier.. eg you may end up buying in trusts and then use contributions to super to reduce your wage down a lot. And then live on the trust income.