Positive Gearing: A Guide to Investing in Property

Investing in property can be a great way to build wealth and create a passive income stream. One of the most popular strategies for property investors is positive gearing, which involves buying a property and renting it out for more than the cost of ownership. This article will provide an overview of positive gearing and how it can be used to create a successful property investment portfolio.

Positive gearing is a strategy used by property investors to generate a positive cash flow from their investments. It involves buying a property and renting it out for more than the cost of ownership. This means that the investor is able to make a profit from the rental income, while also benefiting from any capital growth in the property’s value.

The first step in creating a successful positive gearing strategy is to identify a suitable property. This should be a property that is in an area with strong rental demand, as this will ensure that the property can be rented out quickly and at a good rate. It is also important to consider the potential for capital growth in the property’s value, as this will help to increase the return on investment.

Once a suitable property has been identified, the next step is to calculate the costs associated with the purchase and ownership of the property. This includes the purchase price, stamp duty, legal fees, and any ongoing costs such as council rates, insurance, and maintenance. It is important to ensure that the rental income is sufficient to cover these costs, as this will ensure that the investment is profitable.

Once the costs have been calculated, the investor can then calculate the potential return on investment. This is done by subtracting the costs from the rental income and then dividing the result by the purchase price. This will give the investor an indication of the potential return on investment and whether the property is likely to be a profitable investment.

Finally, it is important to consider the tax implications of positive gearing. In Australia, rental income is subject to taxation, and the investor may be eligible for a range of tax deductions. It is important to seek professional advice to ensure that the investor is taking full advantage of any available tax deductions.

Positive gearing can be a great way to create a successful property investment portfolio. By carefully selecting a suitable property and calculating the costs and potential return on investment, investors can ensure that their investments are profitable and create a steady stream of passive income. With the right strategy and advice, positive gearing can be a great way to build wealth and create a secure financial future.