Positive gearing your investment property is possible and can be a great way to increase your passive income and allow you to purchase more investment properties.
It can also give you a greater return on investment as you are not only making money through capital gains but you are also making money through your monthly positive cash flow.
At OakEden Property Group we have created strategies that suit your financial status in order to positive gear your investments and grow your portfolio.
Positive and negative gearing explained
There are basically two ways you can make money through property investment; through income returns or capital gain.
When your investment income is greater than your investment expenses you’ll have positive income returns – this is a positively geared property.
Properties that return less rental income than the costs of owning the property are negatively geared. They’re expected to appreciate in value over time and are often called ‘capital growth properties’. This investment strategy relies on the property increasing in value over time to outweigh any short-term financial losses.
Pro’s to positively gearing your investment property
A positively geared investment exists when the rental income you receive is higher than the expenses for the property. This type of investment is often referred to as a ‘cash flow property’ as the property is putting additional money into your pocket every month.
It may not suit every situation, however we will assess you on a case by case basis.
If your income were to change this investment is also lower in risk. As long as the property has a tenant and the rental income will cover the investment costs.
Furthermore, like any additional income a positively geared investment can increase your attractiveness to lenders if you were to apply for any additional loans.
In the future you may want to use a positively geared property to balance out your portfolio. You can use the additional income to pay the shortfall of negatively geared investments.
The Pros
- Increase your income
- Not as much risk if your income circumstances changes
- Are used by some investors to balance a portfolio by using the additional income to pay the shortfall of negatively geared investments
- The additional income can increase your attractiveness to lenders for additional loans
Some things to consider about positive gearing
Whilst this investment will supplement your income remember it’s taxable. It’s smart to put a small amount aside each month to ensure tax time isn’t stressful.
Positive gearing is usually a short term strategy but might not make a big difference to your lifestyle or financial position. Often positively geared investments are located in regional areas and may return high rental income because of mining or infrastructure activity. This can cause (but not always) less or slower capital growth.
The Cons
- The income you earn on a positively geared property is taxable
- Often positive cash flow investments are located in regional areas (rather than capital cities), which commonly (but not always) see less or slower capital growth
Contact us to learn more