The 5 Things Every Investor Needs To Know About Negative Gearing And Property

Purchasing a negatively geared investment property in Australia is incredibly common. In fact, close to 30% of residential properties in this country are owned by investors. However, not everyone makes money so let’s examine some key principles starting with… the right property in the right location.

The whole negative gearing strategy hinges on the property growing in value and clearly some areas produce better returns than others. While location is clearly a critical element, it is only one part of the equation. You also need to decide on the type of property you plan to buy - a unit, a flat or a house? One bedroom or two bedrooms with or without a balcony and car space? Do you buy an ‘off the plan’ property or an established property?

Because negative gearing is also a tax driven strategy you need to make sure the property is owned in the correct tax structure. For example, it could be in your own personal name, joint names or a trust. In the last few years, owning a property in a self-managed super fund has become incredibly popular, however, there are a number of issues to consider before you go down that pathway.

The next essential ingredient is the right loan. Again, there are so many variables including interest only or a principal and interest loan. Fixed rate or a variable rate of interest? A poorly structured loan can reduce your repayment flexibility, increase your risk profile and create massive tax headaches.

The next consideration is cashflow. Negative gearing implies that each year you make a tax loss that you need to fund from other income sources like your salary or business profits. Remember, the real profit on the investment is generally only realized when you sell the property.

Finally, you need the right advice regarding insurances, record keeping and conveyancing. Australia now has a ‘property investment industry’ full of self-proclaimed property gurus but there is no substitute for independent, unbiased professional advice.

In summary, over the years we have assisted a large number of clients to acquire an investment property and if you want to know more about negative gearing and the associated tax benefits contact us today.