What Is Positive Gearing

By Matthew Kenworthy | Property Investors

Negative Gearing is often spoken about. Yet many ignore the advantages of Positively Geared Investment Properties. If you haven’t already you might wish to read our article on Negative Gearing.

This information is of a general nature only and is not considered tax advice. For advice specific to your situation, we recommend you speak to an Accountant or Tax Advisor.

Gearing is borrowing money to invest or leveraging your existing cash or equity. And then using that to borrow more than what you currently have to invest in other assets. It is not limited to residential property and can apply to other investments. Examples include commercial property, businesses, shares and managed funds.

Positive gearing is when your income is larger than the costs involved in owning the property. The exact opposite of negative gearing.

If you have money remaining after paying expenses your investment would be positively geared.

Costs may include interest expense, rental management fees as well as ongoing rates. These costs could be tax deductible against your investment income. It is important to talk to your tax advisor to get personalised advice relating to your scenario.

The Advantages of Positive Gearing

Cash Flow

As the property is making you money, you would be creating positive cash flow. This results in higher income which you can use as you see fit.

A negatively geared property requires other household income to pay for the investment.

Less Risky

As the investment is making you money from day one, you should be able to build up a buffer. This can cover times if your property is ever vacant, or if you need to spend money on maintenance or repairs.

The Negatives

Hard To Find

Positive cash flow properties are often harder to find as they are sought after by many investors.

Potential for Capital Loss

Some positively geared properties are often found in single industry towns. Examples would include mining towns. When the industry is going strong, these properties can make high returns.

When the industry is not going well you could find yourself in a bad spot. You could be in a situation where you own a property that is worth significantly less than what you paid.

Paying Tax

Given you’ll be generating a profit, you will most likely have to pay tax on your earnings. This is not necessarily a bad thing. The main goal of any investment is usually to make the owner money.

However your investment is geared it is important to ensure that your loans are set up the right way.

If you would like to take advantage of our mortage broker service, please get in contact with us. Our service is obligation free and we will be happy to assist.

About the Author

Matthew Kenworthy is a specialist in all aspects of Residential & Commercial Finance. He can assist all borrowers from First Home Buyers to Property Investors with Large Portfolios.