Property
investors who have used negative gearing as a way to lower their tax burden are
being found out in a depressed market, an expert has said.
According to Small is the New
Big, bearing the brunt of a sudden dip in income, negatively geared investors
are now finding it harder to service their debts, causing many to completely
rethink the make-up of their property portfolios. The current climate has
seen a 37 per cent spike in enquiries about positively geared investment
strategies to the property education company, with concerned investors wanting
to know how to stop the "haemorrhaging”.
"What we are experiencing is a
very confronting ‘perfect storm’ of reduced income and job losses, which is causing fear and panic in the marketplace. It’s something that
Australia has never seen before,” explained Ian Ugarte, co-founder of Small is
the New Big. Mr Ugarte said that a rethink has never been more important for
investors who are experiencing significant financial distress from
circumstances beyond their control, but he advised clients not to sell at
depressed prices if they can avoid it.
Further, Mr Ugarte highlighted that the market is likely to recover quickly as the economy improves
post-lockdown. "Unlike others, I’m feeling positive about the property market
bouncing back, whether it be in the form of a V-shaped recovery in the short
term or a W-shaped recovery should we get a second wave of COVID,” he said.
Mr Ugarte explained that the
only way investors can ensure they withstand short-termvolatility hits to
the market is by having positively geared properties.
"Realistically, the only way to
future-proof your investment so you can weather a degree of market volatility
is to make investments that are positively, or at least neutrally, geared,” he
said.
"We’ve helped our clients
convert a negatively geared property into a positively geared one within as
little as 48 hours. "My mission is to make talk of abolishing negative gearing
obsolete by creating a marketplace where investors are able to generate a
positive return on their investment. Even if it’s a small return.
"That way, they’re relying less
on the government to make up the shortfall by way of tax deduction, and they’re
not so vulnerable to market forces when another unexpected fall in cash flow
hits them.
"Tax deductions suddenly don’t
look as enticing when people are faced with losing their homes,” he concluded.
There will always be some
situations that you may not always be able to predict or protect yourself from,
however, using the RealRenta platform to automatically manage the relationship
will ensure that you have a very clear basis for the arrangement
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Jason Gwerder
Wednesday, 3 June 2020
