Investors should focus on the income derived from property rather than capital growth and steer clear of long-term negative gearing strategies, according to Smartline Personal Mortgage Advisers.
Smartline executive director Joe Sirianni said although many people thought negative gearing could be tempered by capital growth, it was not a good strategy for the future.
He said the strategy rarely worked for those on a lower income due to the tax considerations. An investor on the highest marginal tax rate got back 45 cents per $1 spent on negatively gearing property, whilst those on the lowest marginal rate got 19 cents per $1, according to Sirianni.
As property is a long-term investment, investors should focus on income rather than capital growth as it has the most benefit in the long run, he said.
"Even if you get growth, that growth is really just making up for your losses, you're not actually really moving forward. It's the surplus income over time – by having regular rent increases – that is going to make the difference," he said.
Negative gearing should be used as a short- to -medium term strategy to get into property investment rather than a long-term strategy, according to Smartline, who said investors should only negatively gear for five to seven years.
Sirianni said the longer an investor is negatively geared, the longer they will pay more out of their pocket than recoup from the property. He said investing should be viewed in the same way as a business.
"While it might be manageable to run at a loss for a short period of time as you establish and grow the business, it's not sustainable in the long term," he said.
Investors should seek taxation advice from their accountants, but a good mortgage adviser should be able to give an indication of the long-term cash flow of an investment property, according to Sirianni.
