Many people think that negative gearing can be tempered by capital growth; however, it is not a good strategy for the future for several reasons.
Firstly, investors should focus on income rather than capital growth as it has the most benefit in the long run. It's the surplus income over interest cost over a long period of time - by having regular rent increases - and by investing that income and earning more income (income on income) which makes property investing profitable and in the process make you rich.
Click here to learn how SMSF can borrow to purchase property
Secondly, capital growth is a distant possibility which may or may not happen, in comparison, high income is embedded in the investment at the time of purchase. Negative gearing should be used as a short term strategy to get into property investment rather than a long-term strategy.
Also, the longer you are negatively geared, the longer you will pay more out of your pocket to recoup from the property after sale. Assuming that you get growth, that growth is really just making up for your losses, you're not actually really moving forward.
Why you should earn 10% return from property
- Security - since you own the property
- Predictable regular income of double that is available from a bank deposit
- Prime property locations and tenants
- Diversity of tenant mix, lease expiry
- Your trusted & competent management
- + Potential Capital Growth
Seminar : How to Purchase 10% Return Property
When: 11th September 2012
What time: 6 PM Registration Refreshments: 6.30 PM Start 7 PM
Where: Parramatta RSL Club Corner Macquarie and O'Connell Street Parramatta
Cost: $35 (Tax deductible to you or your SMSF)
How to book: Visit http://www.trustdeed.com.au/seminar or phone 02 9684 4199
Click Book now
Sometimes growth is nothing but inflation, the cost of building going up rather than genuine appreciation. Appreciation happens due to rarity & demand and where there is abundance, values do not go up. When value (rarity & demand) does not go up, you are merely holding an asset which will only cost you every year to hold, in other words you are paying a bank, so that your tenant can live in your property. Discounting the tenant to afford living in your property, remember you get nothing.
Thirdly, negative gearing strategy rarely works for those who are on low income, due to tax considerations. An investor on the highest marginal tax, earning $180,000 + rate gets back 45 cents per $1 spent on negatively gearing property, every body else gets less.
Click here to learn how to set up a SMSF
So if the formula to richness is high positive returns, why is everybody doing the wrong way and why public offer super funds are not able to offer high returns to their members. The answer is simple; everybody is chasing growth and not returns. And to change this psyche is like teaching a new trick to an old dog, it just does not happen.
To explain the concept of high income, let us look at an example of two families earning say $100K each and one family has a negative gearing strategy in place and ends up with only $75K after tax refund where as the other family has positively geared investments ends up with $120K after paying tax - it is clear which family will get rich first. Remember, at the time of purchase of investments, both families have equal growth expectations.
Click here to learn when your SMSF will need an Actuarial Certificate
If the key or answer to richness is just in four words "Earn Income on income" - and the secret of rich people - you wonder why everyone does not have multiple sources of high income, after all, no one would mind paying $45K in tax provided there is additional $100K income.
You will never see a rich person in a negative gearing strategy seminar because that rich person knows that you cannot become rich by losing money each year - you become rich by earning money and that money earns more money - income on income. Simple.
Imagine a property purchased via SMSF with 70% gearing, earning 10% + return at age say 45, with regular rent increases and salary sacrifice contributions the debt is retired and by retirement age of say 60, it is possible to earn 20% + return on investment when the income becomes tax free as the investor moves to pension phase.
And what about growth, frankly, if the investment makes 25% return, how many of us would really care what the investment is worth, as we are not selling, or are we? Because when you sell, what are you going to do with the money, remember at retirement, it is all about high disposable income to have a smash of a time after a life time of saving "for tomorrow".
Click here to learn on how to move your SMSF to pension phase
If you agree to any of the above your next question should be: Where are these 10% returns properties? The answer is very simple: Everywhere. But, the problem is that you cannot see them as you may not have the skills to find them.
Fortunately, we have found two gentlemen who buy these properties all the time and are happy to share their stories with you.
Mr Paul Flynn: who appeared on Channel 9 "A Current Affair"
Visit http://aca.ninemsn.com.au/video/ and look for a story on "HOME BUY BARGAINS" dated 16th March 2012
Mr John Dalley: of www.benlee.co who has mastered the art of acquiring 10% returns properties
If you want these two men to reveal their secrets and do what they are doing and learn how your self managed super fund can get involved in borrowing by our Superannuation technical director Mr Manoj
Abichandani SMSF Specialist Advisor
These two hours are a must attend and if you own negatively geared properties, get ready to be dazed.
When: 11th September 2012
What time: 6 PM Registration Refreshments: 6.30 PM Start 7 PM
Where: Parramatta RSL Club Corner Macquarie and O'Connell Street Parramatta
Cost: $35 (Tax Deductible to you or your SMSF)
How to book: Visit http://www.trustdeed.com.au/seminar or phone 02 9684 4199
Click on button below to register now