Many of us will be using this time of year to review our own personal financial situation. (You know what we mean … tax time.) An important part of that is considering if and how our investment properties are working for us.
Ultimately, as property owners, we want our investments to be creating wealth for us. Whether it is our short term or long term goal, the aim of the game is not to be losing money. But as the savvy investor will understand, it’s not all bad news if your property isn’t turning a profit.
Negative gearing is one tax rule that can be used to help offset the cost of owning a property, but it is important, though, to not use it as your only property investment strategy.
Determining how your property is geared, that is, what does it actually cost you, will depend on how much debt you have against it. Essentially, if you have a negatively geared property then it is costing you more to own than the money you earn from it. In contrast, a positively geared property essentially means that the income you receive covers all property-related expenses. It pays for itself.
Without getting into the nitty gritty, it seems to be better to own a positively geared property, right? Well, don’t let the word ‘negative’ leave a bad taste in your mouth. It can actually be very useful come tax time, as the loss accrued from your property over the financial year is offset against other taxable income, therefore potentially reducing your taxable income.
How do you plan for your property portfolio to perform for you? Is it to create an income and increase cash flow immediately, or is it a long term growth strategy, such as planning for your future retirement years. This will impact how you purchase, when you purchase, where you purchase and what you purchase.
If you want to add a positively-geared property to your portfolio, often regional areas present more options, but keep in mind the potential for growth in value may be slow in comparison to more demanding areas.
For a long term outlook, focus your attention on the potential for growth, rather than immediate rental return.
When it comes to growing your property investment strategy, it is important to deeply consider your personal situation and gain appropriate, credible professional advice.