A lot of people like to bang on about the many amazing tax benefits of negative gearing.
But let us explain what this strategy looks like for the average investor…
When you invest for negative cash flow, you’re putting yourself in a really difficult position. For example, let’s say you have $90,000 of negative cash flow. Yes, it’s true that you’ll see some tax benefits on that at the end of the year.
But until that time comes, you’ve got to find $90,000 to cover the costs of your investment properties.
Those tax benefits aren’t going to mean much if you’re putting yourself in financial difficulty before you can even claim them!
And that’s exactly what one couple discovered before they started working with ILRE.
The basic concept of investing in property is that you buy, hold, and then sell for a profit later on.
That’s generally true…But the theory doesn’t go into what happens in the time you’re holding the property.
Our lovely couple certainly took the “buy and hold” idea to heart. They bought and bought and bought. They snapped up any opportunity that came their way.
All of this investing left them with a portfolio of 19 properties. That sounds great…on paper.
However, it also left them with a negative cash flow of $90,000. That’s nearly $100,000 of their own money that they had to find each year just to support their investments.
Then the worst happened.
The couple went down to a single income. And with two children to support, one just four months old, that single income wasn’t going to cut it.
They needed to do something about the negative cash flow before they lost everything.
The couple managed to attend one of our one-day events back in May 2016. However, they didn’t really act on anything they’d learned for a while afterwards.
It wasn’t until they attended a second event in October of the same year that they had their lightbulb moment.
They needed to fix the negative gearing problem.
Their existing portfolio was the first port of call. The couple examined all 19 of their properties individually to see which ones were costing them the most money. They also looked for properties that had no potential for getting turned into positive-cash-flow investments.
From there, they did one of the most difficult things that any investor has to do…
They cut their losses on the properties that weren’t helping them achieve their goals.
While it doesn’t feel good to let go of properties in your portfolio, doing so will provide you with freedom. It will give you the space and money needed to seek out new and better opportunities.
And that’s exactly what our couple did.
They turned their focus to a couple of renovation projects in Sydney.
The first cost $580,000, plus a $50,000 renovation. That one is now worth about $730,000.
The second cost $700,000 and required $70,000 more in renovation. But now, it’s worth about $930,000!
That’s great in terms of capital growth…but it doesn’t mean much for the positive cash flow side of things. The couple needed to get regular money coming in if they were going to recover.
That’s when they turned to Airbnb.
They listed a few of their apartments on the service, and now they’re using those properties to generate regular income. Add that to a few more renovation projects they’ve got in the pipeline, and the couple has managed to recover from a tough position.
It took about 19 months for our couple to turn things around after finding themselves in such a difficult position.
But with the help of the ILRE community, they’re now in a much better position.
Their portfolio went from costing them $90,000 per year to generating $27,000 of income!
The couple’s money worries are a thing of the past – and they’re well on their way to building a strong portfolio. Plus, they can offer a few important lessons for other investors out there.
Some people feel almost paralysed when they see that things have gone a little off course. They may learn about certain things they could do to right the ship. But when it comes to moving forward, fear grips them and they just can’t do it.
And so they careen towards disaster, unable to do the very things that would save them…
If you don’t want this to be you, then you have to overcome that fear.
Taking action is key if you’re going to reverse your fortunes. If you sit around doing nothing, the problem will only get worse.
Whenever you try to create change in your life, you’ll always have people around you telling you that you can’t.
Listening to those negative influences could mean that you fail to take action. It could even lead to you abandoning the idea of being an investor!
Ignore the haters.
Leave them to grumble and moan while you actually do the things that will get results.
Having a huge portfolio may be a bit of a bragging point.
However, it can also drag you down if none of your properties generate a profit. Sometimes, you just have to cut your losses and sell. It’s not the most pleasant feeling and it can feel like an admission of failure.
But the feeling of relief and freedom you’ll have afterwards will show that you made the right choice.
And now, you have some room to invest in profitable opportunities.
Investing in everything just to build a portfolio could leave you in serious trouble. You need to take care when making your choices and only make investments that drive profit.
With the help of ILRE, the couple from our case study achieved a stable position in less than two years. You could do the same if you’re willing to take action!