Negatively Gear an Property Investment

A property is negatively geared when the costs of owning it – interest on the loan, bank charges, maintenance, repairs and capital depreciation – exceed the income it produces.

Your investment must make an income loss before you can claim a tax benefit. Therefore, it is critical that you select a property whose capital value will increase over the period in which you intend to hold it.

As a general rule, only investors with the financial capacity to absorb the effect of potential falls in property values, as well as an increased cost in interest payments, should consider negative gearing.

You can minimise the risk of gearing by:

• choosing your investment property carefully. You need to try and select a property that is likely to increase in value throughout the investment period
• having a sufficient income generated via rental to cover the interest repayments
• taking out mortgage protection insurance with your investment loan.

Positively Gear a Property Investment

You can also positively gear a property. This occurs when the investment income exceeds your interest (and other possible deductions) expense.

Note that you may be subject to additional tax on any income derived from a positively geared investment.

A PGFS Financial Advisor can asssist in helping you determine whether property gearing is appropraite for your individual circumstances.