Why Not Invest in Negative Geared Property?
1. Cash Drain: Negative gearing means you're losing money each month as rental income doesn't cover expenses, leading to a continuous cash drain on your finances.
2. Market Risk: Negative gearing relies heavily on property value appreciation to turn a profit, making the investment vulnerable to market fluctuations.
3. Interest Rate Risk: Rising interest rates can significantly increase the cost of holding a negatively geared property, further exacerbating cash flow issues.
4. Dependency on Capital Growth: Negative-geared properties heavily depend on capital growth to offset losses, which is not guaranteed and can vary greatly by location.
5. Financial Stress: Continuous financial losses can lead to stress and financial strain, especially if you have multiple negatively geared properties.
6. Limited Liquidity: The need to inject personal funds to cover expenses can tie up your capital and limit your ability to invest in other opportunities.
7. Tax Benefits May Not Offset Losses: While you may receive tax deductions on losses, these benefits may not fully compensate for the ongoing cash flow deficit.
It's essential to carefully consider your financial goals, risk tolerance, and market conditions when deciding between cashflow positive and negative geared properties, as each strategy has its own advantages and drawbacks.