Positive Cashflow Versus Negatively Geared Investment Properties – What to Know

Positive Cashflow Versus Negatively Geared Investment Properties – What to Know

There is no doubt that real estate can be a very lucrative investment. Owning property can be a way for your family to expand your wealth passively or to add to your portfolio to support your retirement. Real estate is a stable option to park and grow your money versus other choices like stocks, bonds, or currencies.

Owning investment properties has many benefits. They can provide you with precious income streams, you can qualify for tax deductions, and you can also benefit in the long term from capital appreciation. You can enjoy all of these benefits from the right investment, but the wrong one can become a burden. An ill-positioned property might be

When you are investing in properties, it is essential to do as much research as possible. Knowing the condition of the building, the level of occupancy, and the potential for value appreciation can help you weigh the risks, especially if you are going to apply for financing for it.

Most investment properties in Western Australia fall into two categories, the first offering a quicker return on investment, while the second take on riskier assets.

Positive Cashflow Properties

The first type of investment is a positive cashflow property. It means that the property you are acquiring is self-liquidating. That is, the rental income from existing occupants is enough to cover your monthly mortgage payments on the property, plus any costs associated with running it. Positive cashflow is a boon to an investor, as you will be able to earn back your investment money faster. The quicker you get the money back, the more you will have to re-invest in more property or other investment options.

Because positively geared properties are so favourable for your balance sheet, they tend to be more expensive. As an investor, it will be your challenge in the long-term to keep the building running well to keep its occupancy levels and rental rates high.

Negatively Geared Properties

For those who are prepared to take on more risk, they may consider acquiring negatively geared properties. These types of properties require more foresight into its future potential, as the amount of rental income is not enough to cover your mortgage payments or building costs. Owners of negatively geared properties can claim tax deductions to offset the losses in rental, which can help your finances until you can increase the property’s occupancy.

This type of investment is worthwhile if you have the money can to reinvest in it to improve the property or if there are developments in the surrounding areas that will make it a more attractive place to locate. Negatively geared property is a bigger gamble because you will be spending a lot of money to cover the vacancies, and it may be years before you see any return on your investment.

Getting Financing

Many institutions offer investment financing, whether they are national banks or smaller lending institutions. You can shop around to try to get the best rates available, or you can consult an experienced mortgage broker who specializes in investment loans.

Try an online loan calculator to see the kind of financing costs you may incur with a positive or negatively geared piece of real estate. Gather as much information you can about the history, developer, and general vicinity of the property so you can determine for yourself if the loan is worth the risk.

Whatever property you decide to put your money towards will ultimately depend on what potential you see in it, and how capable you are to wait for a substantial return on your money.

Do you need assistance with investment loan finance in Perth? We provide expert advice and resources so you can make fully informed financial decisions. Enquire today and see how we can help!