A Word of Caution Regarding Negative Gearing

In Australia, there is much hype around negative gearing. Property marketers, investment scheme promoters , and ?entrepreneurs-turned-authors? often quote historical examples of people building a property empire using negative gearing investment strategies.

They assert that these people used generous tax benefits to fund their property purchases, using little or no money of their own. They tell you that you can do it too!

Be careful! Before you allow their promises and case studies to excite you, seek advice from a financial adviser, preferably with knowledge of all investment vehicles including direct property, who understands your personal financial position.

When quoting historical case studies, some scheme promoters might forget to advise that income tax rates in Australia are now much lower than a few years ago. Their examples may be from a time when it was common for moderate income earners to pay marginal tax rates over 45%. Today, only high income earners pay more than 30%.

These rate cuts impact significantly on the profit calculations for a negatively geared investment. Methods of calculating capital gains tax have also changed.

You should also be aware that promoters may be receiving generous commissions to sell overpriced property or property with lower returns than are achievable with careful, well-researched property selection.