Buying an investment property for many could be the most valuable investment they will ever make. Hence, a thorough research of the properties and strategies can assist in taking a correct decision.
If you are looking for an investment property, one of the most important things you want to know is how much renal income this property will earn you. What are your expenses going to be? What is the rental yield?
You will find yourselves in either positively, neutrally, or negatively geared situation.
Positive gearing means your rental income is more than the expenses (interest payments and other management expenses and more). – that’s profit
Neutral gearing means your rental income is the same as expenses. – no profit no loss
And negative gearing means income is less than the expenses. – that’s loss
With positively geared property, you are making a profit. That could be a passive income a lot of us would want. It could help you save quicker for other investment property or other investments to diversify wealth creation.
However, more income means more tax. Any profit you make from any investments means you must pay tax on that.
With negatively geared property, you are making a loss. A lot of you may think why would anyone want to buy an investment that makes a loss? How negative can be good?
As per ATO, you might be able to claim your losses as a tax deduction. For example, if your rental income is $20,000 and expenses are $30,000, your loss is $10,000. You may be able to claim this $10,000 loss as a tax deduction to reduce your taxable income.
With negatively geared property you would hope that the property value goes up in the long run.
However, since you are not making any ongoing profit with a negative geared property, you will probably need a bit of cash in bank to cover your losses. And if the interest rate rises, your repayments go up and so does your total expenses.
Before purchasing an investment property, think about which gearing strategy is suitable to you. What is your investment goal? You may want to consult an accountant as well.
Once figured out, we can source a suitable investment loan for you to make that purchase possible.