Well with the election behind us now, the question on every investors lips is – is negative gearing safe now?
Because it became a focal point of the election and the result was so close, it should serve as a major ‘wake-up’ call for property investors according to Simon Buckingham. We take a look at what is likely to be ahead because as Simon says – it’s not over yet!
Kevin: Well, the election is over, and you’d wonder if all of the pressure is off negative gearing now, because we have the right color in the government, I guess it’s fair to say. But the clock could still be ticking. There may still be changes for negative gearing on the horizon. Joining me to talk about this is Simon Buckingham from Results Mentoring.
Simon, thank you for your time.
Simon: It’s a pleasure, Kevin.
Kevin: Is negative gearing safe now?
Simon: I’ve seen some interesting articles that suggest that we can all rest easy as property investors and that we can be assured that the rules have not changed and won’t change. But I think, if anything, what we should take from the election is a bit of a wake-up call that negative gearing is anything but safe. The election result was pretty close, wasn’t it?
Simon: If it had gone the other way, we could have been facing some fairly radical changes to what we’re used to in terms of negative gearing. I think elections being what they are, we might be really looking at just a brief respite before negative gearing is back on the political agenda.
Kevin: I guess the message here is “Beware complacency.” What would you suggest sophisticated property investors should be doing?
Simon: If we’re not complacent – and we should never be complacent as sophisticated property investors – we should really be trying to get ahead of the game. The key to succeeding in property is to be the first, get in there first, whether it’s the first into an area that’s about to take off or any other strategy.
If we think that there’s every possibility that negative gearing comes back into the spotlight, we should be thinking ahead and saying, “Well, what would I do if negative gearing was not available as an investment strategy?”
At a bare minimum, I think any smart investor should always be reviewing the current and anticipated performance of every existing property in their portfolio. I’d suggest that if you’re avoiding complacency and looking to maximize your investments, you ought to be doing this every six months, anyway.
One of the things in doing that is to then identify any properties where the impact on your cash flows would be severe if negative gearing benefits were reduced or removed. Take a look at how dependent you are on negative gearing to manage your cash flows at the moment.
If you are holding properties where you simply couldn’t take the impact of a reduction in your negative gearing benefits or an elimination of those negative gearing benefits, then they’re the ones that you need to look at very seriously in terms of how you deal with those properties in the interim, between now and the next election, when negative gearing might become an issue again.
If you see any properties that are really under-performing, then if they’re under-performing now, they’re only going to get worse if changes are made to negative gearing and to your CGT benefits, because then you’ll be even worse off on those properties.
If those under-performing properties rely primarily on things like negative gearing benefits just to scrape them through, you need to take a hard a look at those and ask yourself why you’re holding those properties to begin with.
Kevin: Yes. I guess you should really educate yourself, too. Negative gearing and positive gearing is really an outcome, isn’t it? You should be making the decision about what type of investor you are, as well, Simon.
Simon: Exactly right. Are you investing for tax concessions, or are you investing to make money? “How are you going to profit from your investments?” is the question that you should be asking yourself before you go into any property and in terms of any properties you’re holding as well. “Why did I buy this property? What do I hope to get out of it financially, and by when? How is it helping me to achieve that?”
You want to look at other ways of making money. If you’re solely reliant on any one strategy – whether it’s negative gearing or anything else – then you’re vulnerable. We’ve just seen that in the election. There would have been a lot of people who have relied upon negative gearing and might have been hoping to rely on negative gearing to the future. If the election had gone another way and there had been changes, they would suddenly have been cast adrift, uncertain of how they would invest moving forwards.
If you’re educated on different property investing strategies, you’re then in a better position to adapt to changes in the market, to changes in tax rules, to changes in legislation, and not be fearful of what the future holds. You can just look for the new opportunities that arise when the market changes or when the law changes.
Kevin: Very well said, and very good advice, too, from Simon Buckingham from Results Mentoring.
Simon, always great talking to you, mate. Thank you very much for your time.
Simon: Thank you, Kevin.