Why being positively or negatively geared aren’t strategies.

Over recent years, we’ve heard plenty about the value of being positively geared. Plenty of experts are out there suggesting that you need to be positively geared so you’re putting money in your pocket every week and can build up a 10-property portfolio in no time at all. They say being positively geared is the only way to invest.

 

My thinking on this is a little different. I’m not saying that you shouldn’t buy positively geared property or negatively geared property for that matter. Rather, I’m saying that being positively or negatively geared aren’t strategies at all – they’re just tax outcomes.

 

For example, if you buy a property that’s positively geared, you’ll be paying tax on that cash flow as it’s a tax outcome. If interest rates increased by 2% on that positive cash flow, you may now be in a situation where you’re generating a negative cash on the same property

At the same time, you could purchase a negatively geared property, then go to your accountant and find out you’re actually gaining some positive cash flow through the various types of deductions on offer.

 

If you’ve followed me for any period of time, you’d know, I’m a pretty big advocate for not worrying about positive or negative cash flows.

 

What is far more important is the net numbers. What’s the property grown by in 12 months, 24 months, five years, or 10 years? 

 

What’s it cost you out of your pocket? Both net and gross. And then what’s your net number?

 

That’s really all that matters.

 

Then it’s cash-on-cash returns. I look at it in terms of what I actually put into this like you would if you’re brokering a business deal, 

 

If you’re brokering any other deal, you’re not looking at the lending amount and what you made on that, you’re looking at how much cash you put into the deal and what your ROI on that cash is.

 

That’s why it’s very hard to beat property.

 

I always tell prospective clients that they should be less focused on buying a positively geared or negatively geared property and trying to find the very best asset they can. When you purchase high-quality assets, there’s always the opportunity to turn them into a positive cash flow asset through things like adding on another structure or renovations or refurbishments.

 

You’re also not putting yourself at risk, by buying a high-yielding property in a very poor location that has multiple issues with it. Typically, that is exactly why it generates a high cash flow.

If you are interested in the above, feel free to reach out to a Henderson buyers agent today for more information.

 

 

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