All Topics / Help Needed! / Quick Question: What is negative gearing?
Hi,
Been hearing a lot. But I dont know what it is. Is it when your rent income lower than your repayment?
Thanks
blaze
More precisely, your costs (council rates, water, sewer, interest, insurance, management fees, strata levies etc) exceed the income generated by the property. The difference comes out of your other income/from other sources.
Thanks Scott. To make sure, when you said interest, is it the mortgage interest?
Example: Loan is $120K repayment $850/ month. Total repayment = $10,200 for the 1st year. That consist of:
Interest: $8,800
Principal: $1,400council rates, water, etc etc = $5,000
rent = $16,200Net = income – interest – cost
Net = 16200 – 8800 – 5000
Net = 2400 (this is positive gearing)Is this how you calculated?
Yes, interest excludes any repayment of the Principal.
Ah Thanks. So what is the idea behind this negative gearing strategy?
Negative gearing basically is only more profitable when the growth of the property is higher than positive gearing property right? or is that more into it?
It is a tax position – as the property is making a loss (even a paper one, through depreciation allowances), that loss goes against the income of the owner (usually in a high tax bracket) to reduce their income and possibly drop into a lower tax bracket.
Neg gearing does not have any impact on growth as it is an analysis of cashflow & tax effects. An investment property with strong capital growth will eventually get caught up with capital gains tax (upon disposal) .
There is a lot more to it: +/- geared property can both be profitable based on the growth of the asset price.
Hi,
It needs a slight rewrite, but negative gearing is explained at:
https://www.propertyinvesting.com/strategies/negativegearing
Cheers,
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Yes! This link is what I need. Thanks!
Thanks for that link Steve. I found it very informative and helpful.
Negaitve gearing is when you borrow to invest and the expenses are greater than the income received. Usually this is only done if you think there will be a capital gain.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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