The pros of negative gearing
So how is it that you can be in the red but still in a good financial position? Put simply, property investment is a business, and anyone who runs a business will tell you that it opens a bunch of potential tax deductions.
"When you look at it that way, if you're on a relatively good income and you want to try and minimise the tax that you're paying, then negative gearing an investment property might appeal," John notes. "You're offsetting part of that loss by reducing the amount of tax you have to pay."
There may also be long-term benefits. "If you own the investment property for longer than a year, speak to your accountant about possible concessions on capital gains," John says. "This can be appealing if you do decide to sell on. If the property has had solid capital growth, this profit may outweigh your initial losses."
The cons of negative gearing
If that seems like a canny approach, bear in mind the risks involved. "You need to be pretty sure you're in a strong financial position to cover the gap between your rental income and your costs until you might make a profit on selling up," John says.
"Negative gearing only works in areas where property prices are rising," John cautions. "It's a long-term game, so you need to do your homework and be sure you can make a profit when you sell in the long run."
It's also worth noting that while your property might be negatively geared, to begin with, it could become cost-neutral or positively geared as the market moves and interest rates come down.
Make sure you seek financial advice
Like any investment, there are calculated risks involved. While we've tried to be as helpful as possible, this article should not be considered professional financial advice. It contains general information only, and you should seek out independent, professional advice on your personal situation before making any financial decisions.
If your financial adviser thinks property investment is a good idea, based on your current financial situation, then talk to one of Invest by Metricon's friendly experts today.
If you feel ready to start your property investment journey, learn more about Invest by Metricon today. Invest by Metricon offers an end-to-end process that allows you to obtain a rent-ready, premium home in one of Australia’s leading estates, simplifying your investment journey. With new build investment opportunities across Victoria and Queensland, you're sure to find something that suits your investment strategy, no matter where you live.