Positive Gearing is the new Buzz Word. It’s easier to say than do.
A positively geared property should be the goal of every investor. Positive gearing means that your rental income exceeds the outgoings on your property, including mortgage payments and other expenses. Nowadays, there is a higher proportion of positively geared properties compared to negative geared properties, which were all the hype several years ago.
Negative gearing relies on the price of your property growing strongly, which in today’s times is risky and uncertain. Without that capital price growth, you are effectively subsidizing the payments annually and that means that the property remains negatively geared.
A better strategy would be to invest in a property that is positively geared from day one, so that it produces a profit.
Purchasing a positively geared property requires experience and judgement, to ensure that you buy in the right suburb at the right price.
Getting the level of borrowing correct and the suitable structure are vital components of the equation. With a majority of residential lenders in the current climate offering competitive package ‘discounts’, the interest rate would have an effect on whether the property becomes positively geared or not.
Additional upfront costs can be some of the heaviest burdens. Some of these costs include State Government Stamp Duty, Land Titles Office Fees, Government registration fees in addition to purchaser/ borrower’s own legal fees. Plus, you need to consider council rates and utility charges as well.
Repairs can be even more crippling. You need to consider such ongoing expenses in the overall price on the investment property, just so it is low enough to justify spending money on some necessary repairs. Sometimes, those repairs may be more expensive that imagined. This can be the case if you the investor, purchases a property away from your area, and are reliant upon tradespersons who may be an unknown quantity. You need to be sure of their ability to deliver quality work and in a timely manner and most importantly within budget.
If you are keen to invest in a positively geared portfolio, Paul at Flakus & Associates can work with you to structure your investment borrowings to achieve your goals. Talk to us today.