There are a couple of things you can hand-on-heart say Australians love. We love beautiful weather and lamb on the barbie. We love beating the Poms at cricket. And we really love negative gearing our investment property.
Negative gearing myopia
It’s one of the most major tax issues in the country with many warning that buying for a tax break is the road to pain and suffering. Even with record-low interest rates, the cost of repaying the average mortgage typically outweighs any rental income investors may receive on a traditional long term rental.
Now with the Murray inquiry about to hit the Australian financial system, there could be ominous signals that this contentious tax break could be on the way out.
It goes like this: If the cost of owning an investment property, including interest on mortgage repayments, is greater than the rental income on that property, the loss can be used as an offset against other taxable income such as your salary.
Opponents argue it distorts the housing market, pushing prices up and forcing first home buyers to compete with wealthy and established investors — and that position appears to have been given some weight by the release of the long-awaited Financial System Inquiry final report.
So what are investors to do? Well, one option is to bury your head in the sand and hope that the government never changes their approach. With the ballooning budget deficit, this could be a brave move indeed.
Make your property cash flow positive
Your other option is to get your property to cash flow positive as quickly as possible. This has two excellent benefits:
- You break your reliance on a tax break with the hope of capital gain to make up your loss. Instead, you get all the benefit of excellent rental income coupled with capital growth (hopefully).
- You can utilise the additional cash flow to pay off your mortgage faster, helping you build equity at a supercharged pace.
So how do you do it? Well, you can scour rural real estate guides in the hope of finding something cheap enough that your potential rent beats the interest repayments, but this can be risky in itself (and who really wants to own something in Bagdad, Tasmania).
Alternatively, you can find a way to dramatically increase your rental income. But with renters already under pressure, you need to get creative if you want to make this work. This is where we can help. Properties listed with us have the potential to achieve 150%-200% of traditional rental market returns with no additional work for owners.
Want to lock in capital growth AND pay off your mortgage quicker? Get in touch and find out how you can maximise your property’s potential.