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Sitting on the fence waiting for the world to end…

But it didn’t, did it..? That’s what a lot of investors thought would happen to the Australian property market after the May 18 Federal Election. The “experts” got it so wrong. In the lead up to the election, you would have thought it was odds-on there was going to be a change in Canberra. And most investors were terrified about the prospect of a changing government. So most of them shut up shop and sat on their hands. But guess what? If they had followed the advice of InvestorKit, it wouldn’t have made any difference.

Negative gearing is not the answer

Most of the fear on the part of investors in relation to a Labor Government came from the proposed changes to negative gearing. Labor’s policy was based on doing away with negative gearing except for new property. But the problem was really not so much to do with the policy, rather the misguided belief that negative gearing is the be-all and end-all of property investing, it isn’t. Many investors will opt for the negative gearing approach in the hope they will win out with a capital gain.

There is plenty of downside to this thinking. It’s cash out of your pocket, and the assumption is your property will simply increase in value. It may not, for some time. Leveraging into further assets to build your wealth becomes very difficult if the capital growth is not there in your negatively-geared property. If this capital growth does not occur, not only were you losing cashflow but it would have been hard for you to save for your next deposit due to the cashflow constraints.

Positive cashflow as the answer?

If those policies came into action, sentiment for positive cashflow investors would have had a shock. However, the strategy is largely immune to the shocks of negative gearing changes due to lack of reliance on the tax benefits anyway. If you have the right property with an income stream in the black from day one, the negative gearing benefits don’t exist for you.

Further to the cash flow upside, if you successfully pick a location that demonstrates exciting long term potential, your cashflow will assist you in holding through varying political and economic environments until the future upside comes through.

Reach out to the InvestorKit team to help you find positive cashflow residential or commercial property, you wouldn’t have lost any sleep worrying about the end of the world as you knew it.