There are many benefits in purchasing an investment property. The possibility of gaining rental income, the expectation of the property value to increase, and also the tax reduction you may receive from negative gearing.

How is your borrowing capacity calculated?

When purchasing an investment property the lender will take a percentage of the gross potential rental income (around 80%), plus any negative gearing benefits, and this is then added to your existing net income (minus any liabilities you might have). So in most circumstances you may not need to earn a large salary or income to be able to get in the property investment market.

Differences between Positive, Neutral & Negative Gearing

Positive Gearing - Positive Gearing is the ideal position to be as a investor. This is when the income generated by your investment property (i.e. rental) exceeds the cost of running the property (i.e. loan repayments, council rates, strata fees, management fees, etc).

Neutral Gearing - Happens when the cost incur in running your income producing property matches the income the property generates.

Negative Gearing - Is where the return from the rental income is insufficient to meet the costs of the investment. Negative Gearing allows people who borrow money to purchase an income producing property, to claim a tax deduction for many expenses they incur running that income producing property including loan interest.

Tax Deductions

• The interest calculated on the loan associated with the investment property.

• Any loan set-up fees, i.e. stamp duty, lenders mortgage insurance, loan application and settlement fees.

• Travelling expenses you may incur from maintenance inspections, i.e. airfares and petrol.

• Building maintenance and repairs.

• Expenses, i.e. water, council rates, strata management fees, landlord insurance, etc.

IMPORTANT: This information should be used as a guide only as is not intended to be investment advice. For tax related advice, please speak with a  professional tax advisor.

What Should I Consider When Buying an Investment Property?

• Research the are your are buying into.

• Does the area attract tenants?

• What is the growth rate of the area?

• Facilities in the area? i.e. shopping centres, medical centres, schools, parks and public transport.

• Living conditions i.e. heavy traffic conditions, aircraft noise, industrial areas, etc.

• Rental returns within the area?

• Landlord Insurance should alway be considered in case of unpaid rent or damage to the property.

• Know your tenants rental history (although this is the job of the real estate who will be managing your property, you should always be the one making the final decision).

• Always shop around when choosing who will manage your property (Note: Management fees vary between 5% and 7%).

• Always ensure to have sufficient funds (i.e. at least 1 month) set aside to cover your loan repayments in case your property is vacant for longer than expected.

IMPORTANT: Information that is contained on this web site should be used as a guideline only. You should always seek advice from a professional financial, legal and real estate specialist before purchasing a property and/or applying for a loan.