Australia has one of the most advantageous tax systems for property investors in the world with many using negative gearing to assist them to ‘cashflow’ or hold their investment properties.
What Is Negative Gearing?
Negative gearing occurs when an investor borrows money to acquire an income-producing investment property, expecting the income generated by the investment, to be less than the cost of owning and managing the property.
This “loss” can potentially be used to reduce the investors' total taxable income for the year – which can lead to substantial tax savings when the end of year tax return is lodged.
Negative gearing benefits can be quite strong when combined with a modern property – in which depreciation claims and benefits can be high.
Astute investors use this strategy to hold multiple investment properties and build a portfolio of properties, which are relatively easy to cash flow.
Should You Adopt This Strategy?
While there are advantages with negative gearing, it isn’t without pitfalls.
It's important to understand that a negatively geared property is still recording a loss. Therefore, before committing to this strategy, it's always recommended that you seek professional guidance to determine if this strategy is suitable for you.
In today’s low-interest-rate market, if investors can identify opportunities in the right area, with solid rental yields, and low vacancy rate risk; and in the right type of property, with high deprecation benefits available – they can quite easily secure a cashflow positive property. All in a capital growth focused market.
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James Allnutt – Property Investment Consultant
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your individual circumstance.