With so many changes in the investment lending space recently, it's been quite a task to keep up with it all. Basically, lenders' policy has tightened to slow down investment borrowing (which had been booming in recent times), including a rise in interest rates that are interest only and much tougher LVR requirements (Loan to Value Ratio) to meet.
Many people have been asking about whether it's now too hard to buy an investment property, and while the answer to that will be different for different people, one topic that has risen it's head is about negative gearing and whether you should look to get a property that is negatively geared or alternatively, one that has a positive cash flow.
Put simply, negative gearing in property is when you have a negative cash flow. To put in leyman's terms, when the investment costs you more to own than it earns.
For example, if your investment property earns you $20,800 per year ($400/week), but your expenses for keeping that property such as body corporate fees, maintenance costs, and your loan repayments of course, collectively add up to $30,800 per year, then you have a negative cash flow of $10,000 and your property is 'negatively geared'.
There has been some talk in media circles of recent times, suggesting negative gearing should be removed altogether but it remains to be seen whether the powers that be would make such a drastic change.
How do you know if getting a negatively geared property is right for you? Well, that will depend on your circumstances and it's a good idea to seek some independent advice from your accountant, but here are a couple of the pros and cons.
Pros
Cons
*Source: realestate.com.au
I'd be interested to hear your thoughts on negative gearing so please post your comments below. Alternatively, if you'd like to know whether an investment property is a viable option for you, please give me a call on 0411 600 210.
DW
Many people have been asking about whether it's now too hard to buy an investment property, and while the answer to that will be different for different people, one topic that has risen it's head is about negative gearing and whether you should look to get a property that is negatively geared or alternatively, one that has a positive cash flow.
Put simply, negative gearing in property is when you have a negative cash flow. To put in leyman's terms, when the investment costs you more to own than it earns.
For example, if your investment property earns you $20,800 per year ($400/week), but your expenses for keeping that property such as body corporate fees, maintenance costs, and your loan repayments of course, collectively add up to $30,800 per year, then you have a negative cash flow of $10,000 and your property is 'negatively geared'.
There has been some talk in media circles of recent times, suggesting negative gearing should be removed altogether but it remains to be seen whether the powers that be would make such a drastic change.
How do you know if getting a negatively geared property is right for you? Well, that will depend on your circumstances and it's a good idea to seek some independent advice from your accountant, but here are a couple of the pros and cons.
Pros
- Losses on your investment property may help reduce your taxable income
- Any losses incurred can potentially be offset when the property is sold
- May be less volatile due to being located near high-growth areas.
Cons
- Budgeting is requried to cover out-of pocket expenses
- Higher debt can increase vulnerability to rises in interest rates
- Negative cash flow properties are a longer-term strategy
*Source: realestate.com.au
I'd be interested to hear your thoughts on negative gearing so please post your comments below. Alternatively, if you'd like to know whether an investment property is a viable option for you, please give me a call on 0411 600 210.
DW
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