Negative gearing springs from the tax breaks that the Government allows investors when there is a loss on a property. When expenses, including repayments, are not covered by income obtained from a property, it is operating in the negative. At first, this may seem like a terrible situation, but it can be used to your advantage because the Government wants to encourage investment. The Government allows the amount of the loss, that is covered by your other income, to be sheltered from income tax. The money you take from your salary to cover the loss from the negatively geared property is not taxable by the Government.
This shelter results in a lower tax rate on the amount you used to cover expenses on your negative gearing investment property or properties. Since you would have had to pay tax on that salary income if it was not used to cover expenses on your negatively geared property, the savings are immediate.
The Government understands that real estate investment needs encouragement to grow, and given the ongoing shortage of affordable housing, as outlined in the recent Supply Report, these tax waivers to investors and property owners, are in very little risk of stopping.
This makes negatively geared properties a good fit for people who have a regular income but want wealth creation strategies that will pay-off in the long-term. It helps shelter some salary income that would normally be taxed at a higher rate, while increasing your asset base with an investment that will pay-off in future.
Many investors, even more experienced ones, choose to use a property management company to avoid any pitfalls involving tenants. Choosing a property to purchase in a middle income area or above is this first step. Using a property management company to screen tenants, conduct inspections, oversee the property condition and request tenants make repairs helps keep risk to a minimum. McCarthy Group can not only provide you with excellent advice on your property investments, but is also able to find tenants and manage the entire investment for you, so you'll never have an investment property sitting idle.
Negative gearing investment property does have some associated risks but they can be minimised by making prudent decisions when purchasing and financing properties. Since losses are usually short-term in most instances, so are the risks. As housing values rise and rents and salaries increase, the tide turns and the property evolves into a positively geared one. The increasing housing values lead to capital growth as well. Expect a seven to ten year turnaround time for the property to mature and in the meantime, you can enjoy tax waivers that assist you in maintaining your repayments. The benefit of a mature property that maintains itself is an investment that can help anyone looking to grow their financial security, either on a small or large scale.
McCarthy Group offers a comprehensive obligation-free report entitled
How to Benefit from Negative Gearing, in PDF format, which goes into greater detail on the risks and benefits of obtaining a negatively geared investment property.