Negative Gearing of Investment Properties

December 23, 2013
Steve Hodgkinson

How does negative gearing work?

Put simply, negative gearing means that the income generated by the investment is less than the ongoing expenses of the property plus the interest cost of the loan for the purchase of the property.

Why would someone want to use negative gearing?

There are many reasons why a person would want to use negative gearing. Among these are:

1.       The ability to acquire a property in a growth area where the anticipated future growth is expected to exceed the financial cost of negative gearing;

2.       The ability to acquire a property in an area where you would like to live in the future but don’t have the means of servicing a loan without the receipt of rental income at the present time;

3.       The ability to diversify an investment portfolio so as to gain advantages of asset or sector diversification; and

4.       While saving tax should never be a primary goal of any gearing strategy it may however be an important and integral element which should not be overlooked or ignored.

How does Mortgage Choice help with negative gearing of investment properties?

At Mortgage Choice we can assist you in 3 ways by:

1.       Putting in place a gearing strategy that combines the twin advantages of an interest rate that is appropriate to your investment and situation, as well as a financial loan package that offers the debt features that you require.

For example you might want to buy an established property and hold a cash reserve of $10,000. In this situation the loan product selected for yourself might contain a loan offset account so that you can access the cash reserve without touching your loan while gaining a 100% interest offset saving while the funds are in the account.  

2.       We can also provide you with a referral so that you can obtain a tax depreciation schedule from our referral partner. Our referral partner offers the following benefits to Mortgage Choice clients:

a.      A low cost fee which is tax deductible;

b.      A money back guarantee;

c.      A free of charge report update with any property upgrades;

d.      A free of charge online access to Real Property Matters Calc-ul-8 bookkeeping tools (valued at $79/year);

e.      They travel to all areas free of charge; and

f.       They provide online access to your Tax Depreciation Schedule.

A tax depreciation schedule assists you in maximising the income tax deductions associated with your investment property. As such doesn't it make sense when investing hundreds of thousands of dollars to make sure that you squeeze every tax deduction you can from the investment, especially on something that will provide a tax deduction year after year?   

We would like to point out that when considering the income tax implications of acquiring and retaining an investment property, investors should always seek professional tax advice from a tax professional. 

3.       Assist  you in putting in place appropriate landlord and property insurance so as to ensure that you are properly protected in the event of damage or destruction of your property.

Why not call now and make an appointment to discuss what finance is appropriate to your investment property? Call me on wk (08) 9317 4814 or mobile 0457 227 227.

Posted in: Property investment

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