If you are thinking of investing in a rental property, it is essential to be familiar with your positive and negative gearing options first. With this, you can easily identify what type of house and where is the best place to purchase a property. Here’s what you need to know:
What is Negative Gearing?
Negative gearing most often occurs in rental properties, where the income received is not enough to cover the expenditures of the house. Meaning, you need to shell out money from your own pocket for the upkeep of the property. The asset only becomes profitable when its value increases on the market.
Since the aim of most investment strategies is to make a profit, businessmen should not invest in a house that doesn’t generate income. You might be thinking: how will I know if the rental asset I want will make a positive gearing? A simple answer is based on the location of the house. If the place is not situated in a strategic location, then it won’t attract renters. However, if it’s on a place with good transportation links and is accessible, then expect that you will earn a lot of money by leasing it out.
Advantages of Negative Properties
This type of property has advantages, too. These are:
Tax Deductions: A common reason why there are still a lot of people who are investing in this type of property is to claim tax deductions. They can reduce their rental and ultimately reduce their taxable income. All they have to do is file investment losses and they can pay less tax for that financial year.
One good thing about an adverse house is that it can be easier to secure a renter for the long term. This is because the rental fee is low. However, if you are aiming for a stable income, it’s not wise to invest in this type of house.
If you want to learn more about your negative gearing options, you should team up with Vanuatu Invest.