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Positive or negative gearing - Which is the best way to go?
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Q. I am about to purchase an investment property. It is better to positively or negatively gear?
Josie’s answer - I am always puzzled why investors want to brag about their negatively geared investment.
Negative gearing means the expenses you have incurred, such as interest payments and maintenance is more than the income you have received from your property investment.
Put simply, you are out of pocket. The maximum tax deduction you can receive is 46.5%. If you are earning less than $75,000 (2007/08), your marginal rate of tax is 31.5% (includes Medicare levy).
To sum up, positive gearing is the better option as your income is greater than your expenses and usually happens if you were financially savvy enough to save a large deposit or perhaps you have really focused on eliminating the mortgage. There are plenty of advertisements claiming you can purchase a positively geared investment property with a small deposit. Proceed with caution and ensure you fully understand the figures they are quoting.
Don’t forget that the above information is general in nature and not specific to your goals and objectives. It is recommended that you seek personal financial advice specific to your needs.
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