Are you an investor looking for investment opportunities in Australia? Have you worked out a strategy? Are you tired of hearing others telling you to invest in gearing when you don’t even understand how it works and all you hear about is negative gearing?
Luckily, you have us to help you out.
Whenever you hear the term gearing, it means borrowing money in order to buy an asset. There are two types of gearing: Positive gearing and negative gearing. Although there is a constant debate as to what is beneficial and which pays off with more benefits, when considering investing in property, one must be well acquainted with both strategies.
In this article, however, we will be looking at positive gearing closely and learn about the rewards it holds for the investors.
So what really is positive gearing? In the simplest of terms, in positive gearing investors invest in properties that generate more income than what you have to pay in expenses because the tax savings go directly into your account. But is this reason enough to choose it over negative gearing? No, it isn’t, which is why we are listing down some more.
Ways positive gearing rewards you
Here are some reasons why positive rearing can be a great property investment for you:
- Increased income: You receive an income which helps you massively in making additional payments on your mortgage and pay off your own property sooner than you think!
- It’s less risky: Additional income always comes in handy in emergency circumstances. For instance, it will cover your investment costs and save you from taking any decisions under pressure like selling off your assets, in case you lose your job.
- It will balance your portfolio: The reason most investors consider positive gearing as a benefit is because it allows them to keep their portfolios maintained by making use of the additional income to pay off the deficit of investment negatively geared.
- It increases your attractiveness: When the time comes and you need to borrow additional loans from lenders, a positively geared investment will make you look good and eligible.
Other benefits include:
- Due to higher income, the borrowing capacity improves
- You will have an investment return from day one as your tenant pays more than your expenses.
- There are better capital growth prospects when engaging in positive gearing.
- Cash flow received can be used as down payment for the principal or credited into an offshore account to avoid high interest rates.
- As disposable income increases the potential capacity to save also boosts up.
But believing that positive gearing will only reap uncountable benefits will be a mistake. It highly depends on your ability to afford and also on your long-term investment targets. So before reaching a decision, it is important that you consider all the pros and cons and risks involved. Unless you have an understanding of how positive gearing works, getting your hands wet won’t do you any good. If you aren’t sure about what to do, it is always better to get advice and consult the experts.