With record low interest rates across Australia, it might be tempting for a person who can afford it to buy multiple properties at the same time, resulting in several mortgage repayments. However, Herald Sun columnist Scott Pape thinks this is a terrible idea, even if one of the properties is meant to be rented out.
“In a good year, you might break even. In a bad year – when the hot water cylinder blows up and your tenants go AWOL—you’ll lose money,” Pape said. “If you lose money, you’re relying on capital growth… And if interest rates rise, can you put the rent up? Probably not.”
He gave pretty similar advice to a woman who is approaching retirement age and is thinking of buying two smaller investment properties to rent out.
“I’d ditch the idea of buying two smaller properties,” Pape said. “Instead, buy a home for yourself and make getting rid of the mortgage ASAP your priority.”
Furthermore, Pape pointed out that lenders are more concerned with the income security and a decent savings history rather than the age of the borrower.
As for non-Australian residents wondering whether it is wiser to buy a positively geared or negatively geared apartment, it depends on the borrower’s income.
“If you don’t have any significant Australian income, then negative gearing is a terrible strategy. Basically, you’d be taking all the risks a ‘normal’ negative gearing strategy delivers but with only half the reward, that is, no tax benefit,” Pape said. “Your best investment is to diversify your investments into owning the world’s best businesses.”
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