In property investing, one of the key factors you will come across is Negative gearing or Positive gearing. In simple terms Positive and negative gearing is whether the income you receive from the rental property is higher or lower than the overall amount you pay to own it.

So what is the key difference between two, as an investor what are the things I need to be aware of, we put down Pros and Cons for both.

Negative Gearing

Income vs Expenses: Rent < Expenses (mortgage interest, rates, maintenance, insurance, strata etc.)
Result: Creates a net loss on the property each year.

Benefits of Negative Gearing

Tax advantage: Offset the loss against your taxable income, potentially reducing your tax bill.
Capital growth potential: Aim for property value to increase over time, leading to a larger capital gain when you sell.

Drawbacks of Negative Gearing

Cash flow strain: You’ll need to cover the shortfall between rent and expenses. Before you negatively gear a property, make sure you can afford the ongoing out of pocket expenses.
Interest rate risk: Vulnerable to rising interest rates impacting your investment.
Long-term strategy: Relies on future capital growth, which isn’t guaranteed.

Positive Gearing

Income vs Expenses: Rent > Expenses (mortgage interest, rates, maintenance, insurance, strata etc)
Result: Generates a net profit on the property each year.

Benefits of Positive Gearing

Positive cash flow: Investment contributes to your income stream.
Less reliant on capital growth: Provides a return even if property value stays flat.

Drawbacks of Positive Gearing

May not offer the same potential for tax deductions as negative gearing. You may need to tax on the income that is positively geared (depends on your overall taxable income)
Finding positively geared properties can be challenging, especially in certain markets.

Choosing the Right Strategy

Financial situation: Consider your tax bracket and capacity to cover potential shortfalls.
Investment goals: Aiming for long-term capital growth or immediate income stream?
Property market: Research rental yields and capital growth trends in your target area.

Remember

Property investment requires research – It is recommended that you find a property with good rental returns and growth potential.
You also need to factor in all ongoing costs of property ownership.

If you would like to discuss further regarding the process of buying and investment property and the pre-approval process, please contact our broker Anup on 0415900264 or email anup@drawequity.com.au

**Please note that this information is general advice only and has not been prepared considering your specific financial situation, objectives, or needs. Before acting on any information, consider seeking professional financial advice to determine if it’s appropriate for you.**