The Simple Guide To Becoming A Property Tycoon
If you’ve ever talked to people with investment properties and wondered how on earth they can afford not one, but two or three homes, then it may help to understand the concept of negative gearing. The world’s top property tycoons have been taking advantage of negative gearing for years. Donald Trump, Richard Branson, you name them they’ve used it!
The Australia government gives a tax break to anyone with an investment property. The term negative gearing comes from the fact that your interest payments will likely be greater than the rental income you receive from the investment property. In other words, you’re still out of pocket every month. This outstanding amount becomes tax deductible.
For example, if your rental income is $1600 a month but the mortgage is $2000 a month, that $400 you pay each month is deducted from your taxable salary when the time comes to calculate your tax owed at the end of the financial year. This can save you thousands every year, and you’ll need every cent since you’re losing money on the property. The idea is that the value of the home will increase more than the extra money you are putting into the mortgage every month, so that when the time comes to sell you’ve not only covered your expenses over the years but also made a tidy profit.
Investing in property has been very popular in recent years and many people have used negative gearing to their advantage. However, in the current era of soaring interest rates and increasing inflation, it’s wiser than ever to consult with a financial advisor before taking the plunge. Property investment is not for everybody, and for people with high levels of bad debt you may be better off paying off that debt first.
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