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Why Is My Property Negatively Geared + Should I Sell? 7 Reasons + Ways To Respond | Ep. 938

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In this episode, we discuss 7 reasons why your property could be negatively geared, as well as ways to respond.    This covers things like your mortgage set to principal and interest, rather than interest-only, and not increasing your rent to the market rate.    Ultimately this is going to allow you as a property investor to ensure your cashflow is as healthy as it possibly can be.

In this episode, we discuss 7 reasons why your property could be negatively geared, as well as ways to respond.
 
This covers things like your mortgage set to principal and interest, rather than interest-only, and not increasing your rent to the market rate.
 
Ultimately this is going to allow you as a property investor to ensure your cashflow is as healthy as it possibly can be.

speaker-1

Hello, welcome to the property, can be podcast. I'm hi Steven. Why is my property negatively geared? And should I sell it? Now, this comes from a lesser of the show and you know what? The great treachery is an true. I can't actually find the exact details of the email they sent, but it stuck in my mind that's gonna make it Someone you met, I might have dreamed it. There's sometimes happens. Anyway, I believe the details were it was a matter 1.3 million dollar property renting for about 660 a week in Auckland. And this list of the show had owned this property for a while and was now considering selling it now. We are going to go through seven different reasons why your property might be negatively geared and then we're also going to talk about seven other things you can do in order to counter ranks that. So what One entry number one is just that you haven't owned it long enough. Now when you buy a property the first time around, is a rental property. Especially in this environment. Now, we're yields a relatively low and interest rates are much higher than they have been. You probably are. If you're not putting in a deposit, you are going to be making a contribution to top up the cost. So if you're using a proper budget where you're factoring and all the costs that may or may not happen such as maintenance or vacancy and stuff like that. Chances are, if you haven't put in a deposit, you are going to be making contributions just to reiterate that. At least you're making substantial renovations to the property for two majorly high-yielding property so but for the bulk of investors that's just the case. Now chances are if you hold that property for a long period of time, it will become neutrally geared or positively geared just because everything goes up over time, including the ring. 100% rinse, increasing about 4.8% per year. And so, because your costs don't tend to increase by that same amount. That's why you're going to see that the second reason why it might be negatively geared, even if you've owned it for a wee while Would be if you haven't keeps the rents up with market rate. So this frequently happens, where if you're doing, okay? And the property is not costing you too much. You might think, maybe, I won't decide to put up the rent spy, whatever the market rate has been. So if you haven't been kept up with those Market rent increases, that's where it could become negatively geared. And I think that is the main thing that I think a lot of investors come up against, I think, for this listener 1.3 million dollar property in a $660 per week, I Think that is probably what's happened there because if you look at that gross yield, the gross yield is only setting about 2.6 percent for Auckland. I'd expect it to be, you know, at least between three and four somewhere between three and four, you'd expect it to be. So I think it's probably under rented. What's the next reason? Maybe you're paying principal and interest. So a lot of investors elect have interest only on their mortgage and and just pay the bare minimum and then they make their money when they sell the property and pay back the mortgage of that stage but summon Easter's, do pay principal and interest. Now, you've got to remember those principal payments. Let's kind of like compulsory savings, so you don't want to factor that into your cash flow even if you're making that. So yes, you want to know how much is going and outgoing. But remember that is the same as you putting that money into a managed fund that you can't get until you sell the property. Do you know? I Andrew, I've we've just been working on the book over the weekend and make sure I've just sent it back to the Publishers for the second read and we enclose people we are but we go through a really good example where We're one investor had all three properties that they owned on principle and interest and that meant that the amount they had to pay to the bank was really, really high. But actually a bit Market structure for this situation would be just to do principal and interest on their own home interest, only on the other two and focus on smashing down that personal mortgage. Number four, on my list of why your property might be negatively geared, as if your expenses are unexpectedly, high. And what I mean by that is let's say that. Poured into her old apartment complex. So it's a classic example. It was I just wrote that down where your body corporate rates are five and a half or six thousand dollars per year, even for a relatively inexpensive, all relatively affordable property and that might be if it's old and hasn't had a long-term maintenance fund or a sinking fund in place. So, that's where they might hike, the body corporate, because I've got to pay for that long term maintenance. Now, if it's in that situation, there's not always a lot that you can do about it. But one option that I know some investors have done is actually reviewed the body corporate expenses and saying, well could we get a cheaper rate on this? Or could we get a cheaper? The one I've got in my mind. Can we stand up? Yeah. About when he calls up the different rubbish suppliers and found out that he could get a better deal for the body. Corporate Safety, everybody including myself, a couple hundred bucks a year. Yeah, Nick says that you're highly geared. Now, this may not be that because you borrowed 100 percent at the star, but might be that you actually borrow more. Now you wouldn't do this now with the new Interest deductibility roles, but let's say a couple of years ago. You restructured your investment property to put more dead against that, sold it to a look through company and then paid down debt on your personal house. Now, if you're done that restructured, that debt, so that your you had the majority you did over your rental properties. It could be that. You've moved so much dear that now your portfolio or even if it's just one property as significantly geared and therefore, making more of a loss than as normal. But what I want to point out in that situation because this mrs. Up investors all the time is that if you are moving a lot of your debt away from your personal home and onto your investment properties, what you got to remember, is that the money that you're putting towards your personal mortgage will have massively. Decrease, so while your Investment Portfolio, might now look negatively geared. The fact of the matter is you just transferring across the payments. You would have made any way against your own home and in that situation again, you're not going to do that today because with the new interest adaptability rules, that just wouldn't work. They want a bit of a curly one, but I always liked that one. Number six is if it's a growth property. So, let's say that you've purchased something that's really going to grow in value, I'm thinking like a four-bedroom Standalone house and gralen, and you've owned it for a while, but it's got quite a bit of dead against it. Those sorts of properties might grow in value substantially over time, but tend to get a lower yield. So if you've purchased something that's really geared for growth but not for yield, it might just be that, it's the very low yielding. Operty. And that actually, I've actually sorry stolen you'll see that before. Yeah, I just did read that on my show notes as well and put a big question mark there. I mean also though I've seen a lot of investors that have bought properties that in my mind should be much better yielding than what they are. For example, an apartment and the sacrificing on growth. But then because they've got high body called prophase, maybe a little more vacancy because it's a bit more limited a product. They end up getting low growth and low yield or do, you know what the As is, when you see properties being promoted online, then a luxury apartment. As soon as I save means it's overpriced. Well, yeah, it means that it's probably very high speak and that tends to mean that the rent is not going to be as good. I mean, High speaker Palmas. Look, I'd love to live in one myself but it's probably not an appropriate investment property just because Apartments don't grow in value very quickly. And if it's got a high purchase price, ice is probably going to be relatively everage yielding and so you're sacrificing on both fronts. Let's just change track for a moment. Andrew and talk about well, what can you actually do about it? And yes, one of these is we'll get to is selling, but there are some other things that you can do. And the first one that I want to talk about is increasing your rent up to the market rate. So if you are behind, if you haven't, kept up with your rental increases and actually, I just released a great map of New Zealand showing where rents are. Increasing fast as you know, in Canterbury has spent nine percent of his last 12 months, according to the trade, me rental, price index, and I see and Southland. It was up about 14.3%. So if you have an increase, your rents for a while, I'm going to keep talking about it until you actually call your property manager and do it. But that's one of the main things you can do. What's the second thing somebody can do? So you can thing is you can do, is to renovate to actually charge more rent. So this could be part of a bigger strategy. You might be able to add on a cabin or add on a room or maybe just tidy up the property. Okay? So you might just do some cosmetic stuff and make it look a lot nicer so that you can charge more rent. If you can spend ten twenty thousand dollars, just sprucing up the house and get another hundred dollars because it's a lot nicer that's good return on investment the next way. And this might be a bit fringy but would be finding ways to decrease your expenses. So, let's take that example. Again, of some sort of very high body, corporate ft is a way to negotiator. Is there any other way? You reckon Andrew summertime. Be able to decrease your expenses really high maintenance fees, Maybe What you might do is get a top on your rental property, do a complete refresh so that you're not having these ongoing maintenance bills. Yeah, okay. I can see how that might work. What's number four, number four. And this is one that I use with investors all the time. Particularly with the new tax law changes as by a high yielding property to help bring in some cash flow to offset their property or properties. That are costing you a lot. Number five, and I like this one is flicking over to interest-only. So if you are already on principle and interest on your investment property, And you have a home mortgage that is on principle and interest. You might like to go interest only on your Investments and then put any additional money back into your personal mortgage. So you're still paying down debt next one. Of course, cell you could sell. And I think this is a really important thing to consider as we have seen major increases and values, but maybe not the same with rent. Now, remember property is a long-term investment, so don't make short-term decisions for a long-term investment. But if the right thing to sell this property at one point, Tray and then redeploy that money into other Investments. Be it property or something else. If that's what you want to go into. What is the opportunity look like with another property? Yeah, I always think there are comes back to the wind. Should I sell my property episode? We did not so long ago, as long as you've got something to put that money into. Now look, that could be a boat. If a boats, what's really going to make your head are generally were talking about putting that money into Investments for the long term? I mean, look, you can buy a boat if you're already on track for your long-term financial future. But if you're not, that's where you want to redeploy it. And do you know what I've got option? Number 74 year, which is do nothing. Now, you might actually be related to, what are you talking about? But look, if you're in the situation where you after listening to this episode? You think you know what the property is negatively geared? But I can afford it. Maybe I am paying principal and interest, but that could be the right decision for you. If you don't have a personal mortgage, then paying down some of your debt on your investment properties, could be the right move for you, but there could be a situation where even though it's negatively, geared, you decide. Hi. I'm Gonna Keep it because as a good property paying the money still seems my long-term interest. Yeah. Well I think this is a really interesting time in the market where we have seen prices go up and rinse are still playing catch-up and so with interest rates going up, people tend to go, oh, I've got to make a contribution to your investment. Yes, you do. Probably, if you're not putting in a deposit, if you're borrowing a hundred percent of the money, you probably do have to make a contribution, but I challenge anyone listening to the show. If you can find me an investment requires you to put zero dollars in and you get a better. A tune. Bring it to me, we'll have it on the show. Yeah. And what you mean by that and we'll get into this in tomorrow's episode. Actually, if you're investing in crypto, you still have to put some money into crypto. If you're going to invest in shares, you've still got to put some money into by the shears. It's not like you're necessarily borrow money from the bank to go by this year's. Well, in that case, you still need to pay the interest on the money. You've loaned out because you've still got to pay the bank every month. And you only get dividends maybe Max for twice a year. Now there actually is a good segue into tomorrow's it. Side where we going to be talking about property versus shares, versus another type of investment because we've built a new spreadsheet, which can't wait to show you which helps to compare the money put into property versus some other sort of asset. So make sure you tune in tomorrow. It is going to be a banger of an episode and of course, don't forget to rate review And subscribe to the property. Can we podcast? Really does help us get the message out to more people? Thanks for listening. And Academy podcast study housekeeping night.

Why Is My Property Negatively Geared + Should I Sell? 7 Reasons + Ways To Respond | Ep. 938

About this episode

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Why Is My Property Negatively Geared + Should I Sell? 7 Reasons + Ways To Respond | Ep. 938

About this episode

Read transcript

Will property always be a good investment (5,10&15 year outlook) ⎥ Ep. 1896

12 property predictions for 2025 ⎥ Ep.1895

Interest Rate Cuts EXPLAINED in 15 Minutes! ⎥ Ep. 1894

I bought 4 investment properties in 2 years … what’s next ⎥ Ep. 1893