There are pros and cons to the method of negative gearing. When the market is good the returns are good, yet a low market or sudden fall in the market can have long lasting financial losses.
Here’s how you can reduce the risk;
- Ensure you have a secure income that can cover the loan repayments when the investment cannot
- Have in place a high marginal tax rate to get the most effective tax benefits
- Negative gearing involves commitment for a period of 7 to 10 years
- Be prepared to handle financial changes, such as reduction in income, loss of spouse income or increasing family commitments.
- Consider purchasing an investment with a central location, close to all major conveniences which would have a higher appeal rate to potential tenants
- Prepare for the worst. Make sure you have adequate insurance for both the investment and you personally
- Equally important is to have diversified investment. In other words, make sure all your eggs aren’t in one basket so that if one investment fails it doesn’t take down the rest.
Negative gearing should be taken very seriously before any decision is made.
Strategic Financial Advice is here to help. Step by step we’ll go through the risks, plan how to minimise the risk and forecast the unforeseen before you invest.
We find that a lot of our clients approaching the new financial year start to plan their next investment.
Give us call and arrange a time to come in and chat about the best investment options for you.
We’ve helped countless individuals to look upon their investment future with a clear and concise plan.
Interested in stepping into the investment world but don’t know how, call Strategic Financial Advice today.