If you are like many owners SMEs, you will not have escaped the impacts of the current COVID-19 Pandemic. Whether it be your personal income, the income from the business or how cashflow has affected any investments you may have, there is almost no one in our SME sector who has remained unscathed.
But I believe there is hope for everyone, and with some smart moves, you can ride out the storm and lessen the impact. Here’s what you need to know.
If you’ve previously been “enjoying” the tax benefits of negative gearing on your properties, this latest blow on your income will surely be having an effect.
I say “enjoying” because I believe negative gearing creates a false sense of wealth and security that has rapidly evaporated in the current situation.
What we are experiencing is a very confronting “perfect storm” of reduced income and job losses which are causing fear and panic in the marketplace. It’s something that Australia has never seen before.
Although the world economy is facing circumstances arguably more dire than what we face in Australia, I am confident about Australia’s property market making a successful recovery, whether it be in the form of a V-shaped recovery in the short term, or a W-shaped recovery if the second wave takes hold across all States rather than stay relatively isolated in Victoria.
So, my advice is don’t panic or make the wrong decisions.
As a business owner, you do have other options, including:
- Talking to your bank about reducing payments by switching from principal and interest to interest only repayments.
- Seeking out a more competitive lender and refinancing your loan. (Perhaps getting a line of credit, for emergency use only.)
- Reviewing your insurance needs and seeking premium relief from insurers, where possible.
- Negotiating with agents to reduce letting fees in the short term.
- Exploring the potential to subdivide the property to sell down or increase equity.
- Converting your typical four-bed, two-bath home into micro apartments, which will average double digit returns and create positive cashflow.
It’s about finding creative ways to reduce the pressure on the properties you own. This is where converting negatively geared properties into positively geared properties can make all the difference.
Realistically, the only way to future proof your investment so you can weather a degree of market volatility is to make investments that are positively, or at least neutrally geared.
My mission is to make talk of abolishing negative gearing obsolete by creating a marketplace where SME investors are able to generate a positive return on their investment properties. Even if it’s a small return. That way they’re relying less on the Government to make up the shortfall by way of tax deduction and they’re not so vulnerable to market forces when another unexpected fall in cashflow hits them.
Tax deductions suddenly don’t look as enticing when business owners are faced with losing their properties. I want you to know you do have options!
Ian Ugarte, Founder, Small is the New Big
