Negative Gearing

Negative Gearing

Negative gearing is a popular investment area in Australia because of the tax policies and concessions offered by the Government and is a rising trend among investors. Negative gearing works because investors are not looking at keeping the property over the long-term. Their investment starts to prosper after the loan has been paid and the property is sold.

How does negative gearing work?

You need to consider several factors before you invest in negative gearing. If your investment doesn’t work out the loss could amount to thousands of dollars. A building inspection report by one of our team of professional building inspectors can help you decide if the property you intend to purchase is devoid of any major issues. When deciding to negative gear think about the following-

1. The total income from the property. Multiply the weekly rent by 52 to work out the annual income.
2. Add up all your expenses including mortgage repayments, council rates, water rates, land tax, strata fees, vacancy, repairs, insurance, manager fees, bank fees and property improvements costs.
3. Subtract the total expenses from the income.
4. Deduct depreciation
5. Calculate the amount of tax you need to pay and determine how much you would get back.
6. Think about the capital growth of the property in the market.

The above factors help determine the capital gains from your investment. You need to do these calculations so you know if the property is worth investing in and whether you will get enough money to justify the investment. Negative gearing is meant to deliver a profit and relies solely on the market demand and supply as well as the growth in property rates.

What are the benefits when negative gearing?

Here’s what you need to understand about negative gearing

• For negative gearing to be profitable, the property needs to be in a housing market that is performing well and the value of the property should continue to rise instead of remaining steady or decreasing.
• If you choose the right property at the right time, there is the potential to earn a decent profit though it’s risky and could possibly lead to loss of money
• As an Investor, you need to plan carefully and make sure you have enough capital to bear the shortfall between interest rates and income even with the tax break.
• Negative gearing is a great idea only if what you receive in capital is greater than your initial investments and expenses.

Negative Gearing in 2017

The past few years have seen increase talk from the Government about making changes to the structure of negative gearing. A few experts think the impact on the real estate market makes housing more expensive and that it only benefits the top ten per cent and pushing up prices for the low-income threshold that it makes housing unaffordable for them. There has been an increasing demand to curb negative gearing though the government hasn’t made any changes to the rules so far.