Being an investor it’s hard to decide which investment technique is right for you. Investing in real estate can be a lucrative strategy if you want to generate wealth in the long run. And before hopping onto any of these options it is crucial to understand the financial implications. If you’re confused, here’s a breakdown of positive gearing and negative gearing to help you navigate the intricacies of the investment world.
Positive Gearing
Positive gearing is when an investment property’s rental income not only covers all expenses like mortgage repayments, taxes, and maintenance but also generates a profit.
By owning the property, you’ll receive monthly payments that can be used for different purposes such as saving for future investments or paying off your mortgage more quickly. It’s like getting paid to be a property owner.
Benefits of Positive Gearing
Right Away Income
Positive gearing allows you to have a consistent income stream, enhancing your cash flow. Also, it streamlines the management of your other financial responsibilities.
Financial Stability
Positive gearing leads to a surplus even when you’re paying for the mortgages. The surplus amount can be utilised for other investment opportunities and also you can set aside for future funds.
Lower Risk
Positive gearing provides a sense of security in uncertain markets as it reduces the reliance on potential capital gains to back up your investment.
Negative Gearing
In contrast, negative gearing occurs when the expenses related to your investment property exceed the rental income. This leads to a net loss that can be used to balance out other income for tax purposes.
Benefits of Negative Gearing
Tax Benefits
The losses that occurred while doing negative gearing can help you reduce the burden of taxable income. Hence, choosing this strategy can lead to substantial savings.
Capital Growth
Investors often choose negatively geared properties in high-demand areas. This is because the investors hope the future capital gains will compensate for the current losses.
Positive or negative gearing relies on your finances, investing goals, and willingness to take risks. Investors who want to play safe and seek regular income benefit from positive gearing’s rapid cash flow.
On the other hand, negative gearing may suit investors seeking long-term growth and tax advantages, but it needs greater risk tolerance and solid financial support.
However, to choose the best one for yourself try to consult with an experienced realtor who can help navigate the world of real estate investing!
