Let’s start with what is a positively geared property. A Positive geared property is one that produces a positive rental return for the owners of the property. These are typically rental properties that earn a better amount of rental income when compared to the payable expenses. These can include but are not limited to house repayments, interest on loan, associated property management costs property rates and insurance. It is very important to make the distinction that the positive income is actually a gross amount, with all the applicable tax still included.
It can be hard to find a positively geared property when you are first purchasing a home as your repayments may be higher at the start of the loan but it seems that there are often positively geared properties that are located in regional areas. Here is where interest in rental properties is usually high, while the vacancy rate is relatively lower. The draw back on this is that the appreciation on the value of the property tends to be a lot slower.
There are numerous advantages to having a property that is cash flow positive:
- Earns you extra income
- Potentially reduces your risk exposure
- Typically easier to sell in a down market
- Attractiveness to lending institutions
There exists a common misconception that positive geared properties are associated with low capital appreciation. This is certainly due to the fact the properties tend to be positioned in regional areas, where property value appreciation rates tend to be relatively below those experienced around inner-cities and also the suburbs. However, the property values are recognized to fluctuate every now and then due to the rental demand fluctuations experienced with regional areas.
Even though this is true, the rental rates may very well grow as time passes, further enhancing the positive cashflow amount. This is actually the case especially considering that the mortgage amount stays constant.
It is important to keep in mind that this information is for general interest only and does not take your personal circumstances into account. We highly recommend that you seek professional help when making decisions on property investment strategies.
If you would like to know more about Negative and positive gearing visit https://en.wikipedia.org/wiki/Negative_gearing
If you would like to know more about finding a positively geared property in Australia visit Property Investment Newcastle