Borrowing at a time of low-interest rates to invest can yield high returns in the long run, and help pay off debts.
Although borrowing to grow a portfolio of shares or a managed fund is risky, if investors have a secure income stream and extra funds, the results can be very favourable. Diversifying the investment may be a way of lowering potential risk.
Negative gearing
Taking a loan out can help reduce an individual’s payable tax. To receive these tax benefits the investment must be negatively geared – where the borrowing costs (interest and fees) are greater than the profit received (rent or dividends).
Although this is considered a high-risk strategy; an individual can deduct the overall losses from their total taxable income, therefore reducing tax.
Positive gearing
When the income received from an investment is greater than the expenses, the individual must pay tax on the total net income.
Extra income can be put back into the property. The amount of positive funds flowing back can be increased by taking advantage of the capital allowances. This is taking advantage of the building’s depreciation.
Review loans
Take a three-point approach to reviewing and renegotiating long and short term debt and finances: consolidate all debt, look into refinancing and challenge the lender to get a better rate.
To take advantage of the low rates on offer or to review your current interest rate contact Craig Sexton from Finance 4 on 0414 480 497 or visit their website.
