All Topics / Help Needed! / Negative Gearing vs buying outright

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  • Profile photo of StarfireStarfire
    Member
    @starfire
    Join Date: 2008
    Post Count: 3

    I have enough saving to buy an IP in cash.  However the agent is asking me to go for negative gearing to help to cut tax.  I end up with the saving still in the bank and own the bank a lot of money at the same time.  Which does not seems to make sense to me.

    So I end up very confuse.  Can somebody tell me why that make good investing sense?

    If it is wrong, what should I be doing?  Any advice would be appreciated.

    Profile photo of Tysonboss1Tysonboss1
    Participant
    @tysonboss1
    Join Date: 2007
    Post Count: 306

    it depends on the risk profile you are willing to accept,

    I believe it is better to leverage a certain amount of your portfoilio to maximise your growth,… for eample

    If you bought a house for $100,000 and it went up by 10% you have made $10,000.

    how ever if you used the $100,000 as a deposit to by $1,000,000 of property and it went up by 10% then you have made $100,000,…… pretty much doubling your money.

    other than that sitting your cash in the bank is not a wise move longterm,…. the capital is eroded by inflation and you have to pay tax on you interest every year,…..

    where as if you borrow to invest then it is the banks money that is eroded by inflation because when you eventually have to pay the loan back you will actuall be paying it back in dollars that are worth less due to inflation,….. and any capital growth is 50% tax free and you don't have to pay the tax on it till you sell so the earnings are effectivly compounded for years before you have to eventually sell,… where as with cash in bank you pay tax on 100% of the interst every year.

    Profile photo of god_of_moneygod_of_money
    Participant
    @god_of_money
    Join Date: 2008
    Post Count: 970

    I would suggest to seek financial adviser advice and tax accountant. NOT YOUR REALESTATE.

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,856

    Speak to your financial advisor/accountant as above. Consider that you use only half of your money to buy, the other half to sit in an off set account (to minimise your interest paid). Depending upon your tax situation you may enjoy tax benefits as well.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    The only reason to borrow to buy would be so that you could afford a few more properties.  I think it would be pointless to have, say, $300,000 sitting in an ING account earning 7% while you borrow $300,000 from ING at 9%. It may only work is you have a non-working spouse who could earn interest on your money and pay little tax.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

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