Negative Gearing and Maximizing Your Property Portfolio

Gearing refers to how you manage the expenses and income of an investment and it can apply to property as well as stocks and shares.

Negative gearing is where you borrow money to invest and the property produces a negative income stream (or a loss), which can then be claimed as tax offset.

So why would an investor knowingly purchase a property that will run at a loss because the income (rent) does not cover all the expenses? That sounds ludacris! However smart investors understand that there are many hidden benefits of buying a property using negative gearing so that it does not have to cost you money.

With negative gearing, you can get a second income stream as the tax benefit or tax refund can be added to your rental income. The tenant and the taxman can be paying most or all of the property expenses – it does not all have to come out of your pocket.

This is usually overlooked by the critics of negative gearing, yet this extra tax benefit or refund can be an effective way to manage the holding costs of property as your grow your portfolio. And from our experience, the less holding costs the faster you can grow your property portfolio. It is all about the cashflow rather than the gearing!

Building a large asset base for a future passive income is more about buying quality growth assets than about short term rental yields. Many investors need the benefits of negative gearing to subsidize their portfolio’s holding costs. The hidden benefits and incentives offered by negative gearing may give you a more ‘positive’ outcome than you first thought.

As rents grow over time, as the property increases in value and the expenses decrease your return on investment grows as well.

Like most things, negative gearing has its supporters and opponents. The tax benefits are an incentive for people to borrow to buy property with a view to making themselves more financially independent during retirement. The benefit results in being able to quickly build your property portfolio, with little holding cost and paying very little tax.

Hicks Real Estate is here to help you get the full benefits from negative gearing whilst growing your property portfolio. For more information please call us today on: 07 3355 6845.

Remember to always consult a qualified financial advisor before making any big decisions relating to properties or investment.