Positively geared property investments smarter than negatively geared?
on March 26, 2012 by Peter James
When all of the mortgage interest payments, expenses, council rates, insurance and any other costs related to the property are paid for from the rental return received, the structure is called positively geared property investment.
It also means that at the end of every week, after paying the entire mortgage interest on the investment property and other related expenses, the investor still have the money coming back to him. Positively geared properties, however, do not have good capital growth returns as the negative geared properties.
Negatively geared investment usually attracts higher levels growth; hence, the investor can be smarter about it. Some consultants would even suggest that the property be rented out by the room to students, or add value to the home by renovation to increase rent.
Tanja Kraus, an investor and a property manager shared her experience: ““I am purchasing what I consider to be positively geared properties at the moment – as long as the repayments, rates and insurance are covered, I’m happy.”
“If repairs come up then this may need to come out of my pocket, so technically this may not be considered positively geared, but this property is a lot closer to that goal than [with a negatively geared investment] where you are chipping in for the mortgage.”
In order to get a positively geared investment, she advised to pay a large deposit on a property. “If you are going to put a 50% deposit down on a property, chances are it will be positively geared, but if you’re seeking a traditional positively geared investment without handing over a wad of cash, you may be in luck.”
Kraus has also observed that property vendors are now flexible on price options. “With interest rates set to come down, the costs of owning an investment property are becoming more affordable. “If you hunt around enough,” Kraus added, “there are still positively geared options available.”