[signoff icon=”icon-help-circled”]QUESTION: “I’m looking at getting an investment property and over the weekend I viewed a unit and the agent told me it was positively geared. Shouldn’t an investment property be negatively geared?”[/signoff]
Negative gearing means that there is a shortfall between what rent you get in and the mortgage payments you have to pay out. This means you will have to dig into your pocket for money every week to supplement the rent to pay the mortgage as well as to cover the rates, breakdowns and repairs required. You are making a cash flow loss on the property which you can claim on your taxes and either reduce the tax you pay at the end of the year or increase your refund.
With a negatively geared property you are hoping that your capital gains are going to be higher than the weekly shortfall.
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Positive gearing means you will receive more in rent than what you need to pay the bank which allows you to save up and to cover other expenses like rates, repairs, maintenance and refurb of the property. Because you are making money it may mean you have to pay tax on the difference but that how much will depend on depreciation and other factors that your accountant will work out for you.
Positively geared the properties get a positive rental return and the capital gains.
Money coming in is better than money going out. So a positively geared property is much better than a negatively geared property and these days with low interest rates, high rents and low property values you can find positively geared properties.
If the property suits you, the price is right and you can lock in a low rate why not make an offer.