Combining your money together with borrowed funds can increase the amount of return one can receive from their investments. It also means a higher amount of money to invest with today rather than later. Having larger funds today when your time line for investing is longer, rather than when you are older with a shorter time line.
By borrowing money to invest allows for taxation benefits as the interest cost of borrowing are an allowable tax deduction.
Did you know the most common form of gearing strategy is purchasing an investment property?
People see that as low risk and are happy to NEGATIVE gear the loan. (LOSE MONEY) Yet if we said to the person we are going to purchase shares to lose money they would be shocked, horrified & law suits would follow. So why do we think that negative gearing a home is good advice?
This depends on the person goals and objectives. Why put your goals and objectives into the hands of un-qualified people who are offering investment advice? (Uncle Billy Bob at the family picnic has said it is great for him as they now have 4 houses and all are losing money)
There are numerous different gearings strategies:
- NEGATIVE GEARING – In short running the investment at a loss and then trying to reduce the assessable taxable income for the person. (The main reason for this is you would be looking for long term appreciation of the investment, meaning upon having CGT trigger you would pay capital gains tax)
- NUETRAL GEARING – Where the investment, be that property or shares, puts the investor into an equal position. (As per above with Negative Gearing)
- POSITIVE GEARING – “The HOLY GRAIL” this is where the investor is making more money than what the investment is costing him/her. Normally this will increase the investors assessable income for taxation purposes. Really ins’t that what we all want, to earn more money? Build our wealth?
Which one is right for you? What are you looking to achieve? Speak to Personal Finance Solution today before going and getting those home loans. After Uncle Billy Bob the forklift driver may not really know or understand investment streams or the right gearing strategy for you.
- Many people hear from Mum & Dad about buying an investment property. With Interest rates at an all time low there are a lot of people trying to get you into the investment property market.
- What about the risk of an investment Property?
- What about the Return on Investment?
- What are tax implications? Positive gearing v negative gearing
- Is there any real benefit for me or are the better options.
- What about the home loan? Do I fix the home loan, repay Interest Only or repay Principal & Interest.
- What about the tenants?
- You get Capital Growth then what about CGT?
- There are numerous investment streams offering a wide range of return on investment with a complexity of markets/investments structures. Personal Financial Solutions recognize that utilizing your individual needs, goals and risk allocations these returns will vary now and into the future. As you get older you become more risk adverse and whilst you are younger the risk you are prepared to take on is far greater.
That is why Personal Financial Solutions use different investment vehicles for your funds. Allowing us to change the underlying investment stream for you and you change and markets fluctuate