Negative vs Positive Gearing

Generally speaking, a good long term strategy for investing in property, is balance.

For instance, if you have some negatively geared properties in your portfolio, you should also aim for some positively geared ones as well.

Negative gearing is where the costs of owning the property are more than the rental income being produced.

The strategy here is to wait for capital growth and sell it for a profit.

The benefits of negative gearing are that you claim your losses on tax but it also means a potentially tighter cash flow, as you have to wear the costs of owning the property.

Positive gearing on the other hand is where the rental income is more than what you pay in expenses.

The benefits of positive gearing are that not only do you have more cash at your disposal but that it also increases your future borrowing power, if you want to expand your portfolio.

The main drawback of positive gearing is that the ATO will take a slice of your rental yield but cash flow positive properties can actually help keep your portfolio in check, by covering any losses you incur on any negatively geared investments in your portfolio.

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Jason Gwerder
Tuesday, 17 September 2019

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