Negative gearing turns positive
Property yields are low, capital growth is at risk, APRA continues to slap limits on investor lending and banks have increased interest rates. Throw in the changes to depreciation perks and the clipping of investor wings and you may be wondering, “Is negative gearing a strategy that still works?”
Bryce Holdaway, who crunched the numbers for this month’s cover story for households on two different incomes, says “yes”. Now while you’d expect somebody who makes a living out of the property market to say yes, his reasoning has little to do with tax perks and more to do with time.
As he says, ultimately, negative gearing is not so much a strategy; it’s a tax outcome that represents a moment in time. It’s a means to an end. His two plans show exactly when you can expect your net cash flow to turn from negative to positive.
On the topic of real estate, Mark Story compares the returns of granny flats and investment properties. Depreciation can certainly have a big impact on your returns. In his examples, the weekly cost of a $550,000 house is reduced from $121 to $37 while the $120,000 granny flat is cash flow positive at $124pw. But as we’re reminded, rely on depreciation (or any tax perks for that matter) and you’re rolling the dice if laws change.
Although it’s a serious topic, Paul Clitheroe’s column on credit card travel insurance certainly made me laugh. If you’ve been reading his columns over the past year you’ll know he’s been travelling a bit (drawing down some of his super, I suspect). Not sure what prompt-
ed him to read the fine print on his card cover but thank goodness he did. He now knows that for his next walking expedition he needs to book a guide with a gun. (See page 10.)
As we were heading to the printers, AustralianSuper announced that insurance was now an “opt-in” for younger workers rather than an automatic inclusion. As a mother of a 16-yearold who has a super fund and no debts or financial commitments, this makes complete sense. Even she questioned the usefulness of having to pay for insurance. AustralianSuper estimates that the exclusion of insurance premiums before turning 25 would save members an average of $9000. No doubt other major super funds will follow.