Basics of Negatively Geared Property
We all know that a negative geared property can be great for tax write offs but let’s have a look at what other things make a negatively geared property worthwhile.
“Negative gearing is a form of financial leverage whereby an investor borrows money to acquire an income-producing investment and the gross income generated by the investment (at least in the short term) is less than the cost of owning and managing the investment, including depreciation and interest charged on the loan (but excluding capital repayments). The investor may enter into a negatively geared investment expecting tax benefits or the capital gain on the investment, when the investment is ultimately disposed of, to exceed the accumulated losses of holding the investment. The investor would take into account the tax treatment of negative gearing, which may generate additional benefits to the investor in the form of tax benefits if the loss on a negatively geared investment is tax-deductible against the investor’s other taxable income and if the capital gain on the sale is given a favourable tax treatment.”
Source : https://en.wikipedia.org/wiki/Negative_gearing
Negatively geared property can certainly still create a profit if the need for the asset gains after a while to ensure that any capital gain covers the losses made during the life of the investment. It is also profitable if income increases as time passes and covers the cost of interest around the amount borrowed for your investment. Rates could also reduce and this can lead to the income from rental becoming more than the costs. There are specific investors that will try to find the negatively geared property in order to help them to reduce their tax liabilities by permitting the losses from your property being offset against their other income.
This strategy to investment might be disastrous when property values usually do not rise, plus, in such negative economic scenarios, income from rents is likewise likely to fall, ultimately causing additional losses. The investor then gets locked in to the property investment and should have the capacity to sustain losses till the market situation improves. In these cases, your capital brings you no returns whatsoever, and you should keep investing in money till the economic scenario changes for that better. At such times, the investor will need to require a ask whether selling your property confused will save him long term losses.
Buying negatively geared property is great when property values are rising, nevertheless, you must be equipped for any downturn and also ride out the bad times. Taking the advice of experts and fully understanding tax implications can help to go ahead and take right decision. Negative gearing makes for over-investment in rental property, that may cause an economic distortion. Property prices go higher and this makes it difficult for folks who are interested in buying property for his or her own use. The notion that tax deductions will be helpful is only for those who have high incomes and would like to reduce their tax liabilities. You should have another income that will enable you to bear the additional expenses from the negative gearing.
If you would like some negative and positive geared property options in the Newcastle and Central Coast areas see the team at Property Investment Newcastle.
Please be aware that the information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial advisor to consider whether that is appropriate having regard to your own objectives, financial situation and needs.