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Dino Livanidis
Positive Gearing is when the property is bringing in more money than what is going out. Neutral Gearing is when money coming in, is the same as what's going out (you can also have a negative geared property but with the tax advantages from the investment can make it Neutrally geared. Negative Gearing is where money coming from the Investment and tax advantages is less that what is going out. Remember - you can also have a Negative Geared Property giving you a positive Cash Flow. For Example: Lets say you have an Investment Property worth $250,000 at 7.5% Interest Rate = $18,750 per year Rental Return 6% = $15,000 per year _______________ -$3,750 short fall But, due to expenses, depreciation of the building and internal fittings and fixtures that I can be claimed against income tax, I can reduce my personal tax by (for this example), $4,000 for the first year. - $3,750 short fall $4,000 tax return ______________ $ +250 positive cash flow I'm making a whopping $4.80 per week! Not much, is it? So you must first know what it is that you want in your Portfolio. Have you ever thought to yourself- Why do Investors use Positive Cash Flow? More than likely it is due to low capital growth and the rent increasing faster than the property value itself. I'll give you an example. Let's use the property mentioned above but use Positive Gearing. I'm now going to put that property in a high capital growth area. In the same year the investment property value increases from $250,000 to an amazing $320,000. You can't go to the tenant and say, My property is now worth more money, pay me more rent! That doesn't work! If you tried it you'd probably be without a tenant! With investment properties, you must always remember cash flow. Don't fall into the trap of asking for higher rent and having no-one wanting to rent your investment property! Let's continue. The property is now worth $320,000 $320,000 at 7.5% Interest Rate =$24,000 per year Rental Return 4.7% =$15,040 per year Tax return claim =$ 4,000 first year _______________ -$4,960 my short fall for this year. So now this property will now cost you approx $95 per week Remember - negative geared properties will give you much more money in equity which you can use for your retirement or to purchase more investments. I personally have all negative geared properties in high capital growth areas. These properties are starting to be neutrally geared due to rent going up over the years and offcourse with inflation. What I will also say is, that it all depends on your Comfortability, lifestyle and living expenses and your Cashflow. When I sit with a client they understand where I'm coming from. We cover comfortability, lifestyle and living expenses and then work on what will best suit their personal cash flow. I believe this is to be the most important part of Property Investment. So dont worry too much if you should use Positive, Neutral and Negative Gearing. I show them how property investment works, but you must ask yourself is it for you? You must answer these questions; Does your Cashflow allow you to invest? Does it work in with your goals in life? What are you doing now for building Wealth? What have you changed financially to start moving ahead with your future? Sign Up & Get Your FREE 20 Page Report and Weekly Property Tips. http://www.npis.com.au/investment-property-signup.html Kind Regards Mr. Dino F. Livanidis, 0418-872280, dino@npis.com.au, www.npis.com.au NPIS teachers people how to Invest in property the right way, get your Free report "The Ulitmate Guide To Property Investment" and also get free tips weekly on everything you need to know about, Property Investment, Taxation, Finance and much much more, go to www.npis.com.au to sigh up now. Article Directory: Article Dashboard Other articles from Real Estate... |
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