Losing money on rental property is a common investment strategy in Australia. It's called
negative gearing. And today I want to look at whether or not losing money is a winning
strategy.
Hi I'm Ryan from OnProperty.com.au, your daily dose of property education and inspiration.
Losing money in order to make money sounds pretty crazy on the surface but that's what
negative gearing is. You lose money each and every week or every month or every year because
your expenses are greater than the income that's coming in and you hope that your property
will go up in value more than the amount of money that you're losing each year.
Negative gearing can be a risky strategy in the short term because it's very hard to predict
exactly when a market is going to go up. But a lot of investors are extremely confident
in negative gearing for the long term. Because property has historically doubled every 7-10
years, by investing for the long term you're taking advantage of that cumulative growth
effect, which hopefully should outweigh any loses that you've incurred. Also overtime
due to inflation and due to supply and demand issues for housing, rental income has also
tended to increase, which means overtime a negatively geared property can become positively
geared. So losing money on your rental property can actually be a winning strategy if you
chose the market correctly or if you hold on to the property long enough to then see
the accumulative growth returns or to see the increase in rental income returns.
But I want to ask you the question, why not invest in positive cash flow property first,
that's also going to go up in value? Yes, positive cash flow properties are harder to
find in Australia and most properties in Australia are negatively geared but you can find properties
that are both positively geared and have the potential for great growth or if you're a
very savvy investor, then you can find positive geared properties that you can add value and
add instant equity to. On the surface, positive cash flow properties seem extremely difficult
to find, but I can actually tell you that they're not. It took me 3 years to find my
first positive cash flow property but now I find them every single week. I list 5-10
new properties inside OnProperty class every week and the more I looked, the easier I have
found that it is to find them. If you want to check out OnProperty Plus, go to OnProperty.com.au/plus
and sign up today.
Lastly, I want to talk about - If you are losing money on your investment property,
what can you do to make that a winning property.
One of the quickest ways to improve your cash flow is to move from principal and interest
loans to interest only loans. Now I can't say what the best financial decision is for
you, you need to speak to a professional about that. But I can say that for interest only
loans, because you're not paying off the principal as well, it does ease your cash flow in the
short term when money tends to be the tightest. Then over time as rental income goes up, there's
always the option to convert to principal and interest at a later date. But moving from
principal and interest to interest only can ease your cash flow and can actually flip
it from what seems to be negatively geared, to now positively geared property.
You could also look to increase your rental yield through renovation to converting into
a positive cash flow property or you can increase the value of your property through renovation
or development if the value of the property hasn't gone up because the market hasn't gone
up as you would have liked. You can also look at things like developments or dual occupancies
or things like granny flats, which are now fairly easy to get approved, to give you increased
value but also to give you that increased rental income to come in.
So in conclusion, losing money on an investment property can be a winning strategy but investing
in a property that generates you income can be a winning strategy as well. It's up to
you what you want to invest in and how you want to invest but I do implore you to consider
investing in positive cash flow property.
Until tomorrow, remember that your long term success is only achieved one day at a time.
I'm Ryan Maclane, I'll be back tomorrow at 8pm for another episode.