Negative Gearing
Borrowing gives us the power to buy different properties, which may be out of
reach which may be otherwise not possible. While the investment can bring you
high return, you need to be careful with how much you borrow and be aware of
Negative gearing.
Negative Gearing is a situation where you borrow money to buy a property; but
the income generated from it in form of rent etc does not cover the interest on
the loan. This offcourse does not affect every property but can happen there are
too many fluctuations in the market trend.
For example you borrow $250,000 with an interest of 7%. The total interest is
you pay for a year is $17,500; the weekly rent you receive for the property is
$300, which $15,600 a year, which is less than the interest you pay.
There can be additional costs that you could incur like insurance, rates,
maintenance and other expenses that can make your current situation worse if you
are in negative gearing.
You could be entitled to different tax benefits if you are in negative gearing.
You should consult your solicitor or a professional about these tax schemes.