Not many property investors go this far but here is a doozy… A property can beΒ negatively gearedΒ and stillΒ haveΒ positive cash flow.
Pro Tip:Β While on paper it always makes sense to buy positive cashflow property but the end of the day it all depends on where you are at in your property journey and your risk appetite.
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- Positive Gearing:Β Positive gearing occurs when the rental income from a property is greater than the expenses associated with holding the property, resulting in a positive cash flow. In other words, the property generates a profit for the investor.
- Negative Gearing:Β Negative gearing occurs when the expenses associated with holding a property, such as mortgage interest, property management fees, and maintenance costs, are greater than the rental income. This results in a negative cash flow, where the property generates a loss for the investor. Depending on the type of investment, one can still turn the tables and end up saving more from taxes.
- Positive Cash flow:Β Positive cash flow occurs when the rental income from a property is greater than the expenses associated with holding the property, resulting in a net positive cash flow. This means the property generates a profit for the investor. The greatest disadvantage of positive cash flow is pretty obvious! Since you are earning more, you will have to pay higher taxes. Depending on your primary income you can end up paying more taxes.
- Negative Cash flow:Β Negative cash flow occurs when the expenses associated with holding a property, such as a mortgage interest, property management fees, and maintenance costs, are greater than the rental income. This results in a net negative cash flow, where the property generates a loss for the investor.
It’s important to note that negative gearing can potentially have tax benefits, as the losses generated from the property can be offset against other income, resulting in a lower overall tax bill. It is always best to consult a tax professional for more information.
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