Cracking the facts
What is positive and negative gearing?
Do you know the difference between positive and negative gearing? In this video, we explore how positive and negative gearing can affect your investment property strategy.
What is positive and negative gearing?
Do you know the difference between positive and negative gearing? In this video, we explore how positive and negative gearing can affect your investment property strategy.
What is positive and negative gearing
“Gearing” is a practice common in property investing. A property can be positively or negatively geared. By definition, a property is positively geared if the income from the investment is higher than the interest and other expenses. Therefore, the investor benefits from a consistent cash flow as well as a safety cash buffer. The extra money will have to be paid for as part of tax on additional net income. Positively geared properties are also referred to as “cash flow properties” due to the income they generate.
On one hand, negatively geared properties don’t make enough to cover all expenses – essentially making a loss.
But a negatively geared property is not entirely set to fail. Investors who are confident about the capital growth that the property will achieve in the future (which will allow them to offset their property’s losses through the property’s capital appreciation) can still put their bets in negatively geared properties.
Additionally, negative gearing often attracts investors due to the tax benefits of an investment loss. By implementing negative gearing as a strategy, the property-related costs are, in essence, paid for by your tenant through rental returns, by the Australian Taxation Office through tax savings and by your own surplus cash flow.
What is positive and negative gearing
Still, experts remind investors that it is not advisable to invest in property solely for tax purposes.
While tax deductions are welcome benefits, they should not be the main consideration for buying an investment property. Ultimately, investors should focus on increasing income and the overall return on investment.
Explore nestegg to learn more about property investment strategies.
RELATED ARTICLES
Financial Terms Made Easy
What Is A Personal Cash Loan - Video
Have you ever found yourself in a financial pinch? You may be looking to consolidate your credit card debt, fix your house or fund your dream wedding. Whatever your financial problem is, you’re not ...Read more
Financial Terms Made Easy
What’s ethical investing?
How would you feel if you found out that the fund you have money in is invested in companies that have morally questionable products or beliefs? How does one invest “ethically”? Read more
Financial Terms Made Easy
What is a commodity?
Commodities are part of our daily lives. It’s in the food we eat, the clothes we wear and are even used to heat our homes. But what exactly are commodities? Read more
Financial Terms Made Easy
What is a mortgage broker?
You have found the perfect property to purchase and now you’re on the lookout for the best loan to put those keys in your hand. But shopping for a mortgage can be a tedious step in buying a house or ...Read more
Financial Terms Made Easy
What is a buyer's agent?
Whether you’re a first-time home buyer looking for your dream house or an investor looking to get into the real estate market, purchasing a property can seem like a difficult task. Read more
Financial Terms Made Easy
What is a stockbroker?
Finding a good stockbroker can be the difference between being a successful trader or suffering investment losses. In this video, we’ll discuss what a stockbroker does and how you can find the best ...Read more
Financial Terms Made Easy
How does a payday loan work?
Do you need fast cash? Do you want a quick fix for that financial emergency but didn’t take the time to save money for a rainy day? Read more
Financial Terms Made Easy
Setting up a SMSF
So, you’ve decided to set up your own self-managed superannuation fund (SMSF). You are excited with this new financial venture to boost your retirement funds, but you’re not quite sure where to ...Read more
Financial Terms Made Easy
What Is A Personal Cash Loan - Video
Have you ever found yourself in a financial pinch? You may be looking to consolidate your credit card debt, fix your house or fund your dream wedding. Whatever your financial problem is, you’re not ...Read more
Financial Terms Made Easy
What’s ethical investing?
How would you feel if you found out that the fund you have money in is invested in companies that have morally questionable products or beliefs? How does one invest “ethically”? Read more
Financial Terms Made Easy
What is a commodity?
Commodities are part of our daily lives. It’s in the food we eat, the clothes we wear and are even used to heat our homes. But what exactly are commodities? Read more
Financial Terms Made Easy
What is a mortgage broker?
You have found the perfect property to purchase and now you’re on the lookout for the best loan to put those keys in your hand. But shopping for a mortgage can be a tedious step in buying a house or ...Read more
Financial Terms Made Easy
What is a buyer's agent?
Whether you’re a first-time home buyer looking for your dream house or an investor looking to get into the real estate market, purchasing a property can seem like a difficult task. Read more
Financial Terms Made Easy
What is a stockbroker?
Finding a good stockbroker can be the difference between being a successful trader or suffering investment losses. In this video, we’ll discuss what a stockbroker does and how you can find the best ...Read more
Financial Terms Made Easy
How does a payday loan work?
Do you need fast cash? Do you want a quick fix for that financial emergency but didn’t take the time to save money for a rainy day? Read more
Financial Terms Made Easy
Setting up a SMSF
So, you’ve decided to set up your own self-managed superannuation fund (SMSF). You are excited with this new financial venture to boost your retirement funds, but you’re not quite sure where to ...Read more
