Article By Christopher Melotti
Friday, September 27, 2019

Think positive: How positive gearing can help you achieve property-investment success

Positive gearing is a smart way of growing your wealth through property

Have you considered positive gearing when building your investment portfolio? Australians commonly believe that negative gearing is the only way to invest successfully. However, positive gearing can provide a major boost to your property-investment strategy. Here’s how.

Australians love real estate.

Why? Because buying the right property in the right location at the right time is the smart way to grow your investment portfolio, helping you achieve financial freedom, wealth and even early retirement.
A well-ingrained part of this culture is the strategy of negative gearing. But what about positive gearing? It’s mostly overlooked!
So many people underestimate positive gearing as an effective way to help grow wealth and achieve financial success because they don’t realise its full potential.
So, let’s dive into how positive gearing can take your investment strategy to the next level.

Negative gearing vs positive gearing

Generally speaking, a negatively geared property is where the expenses of the investment, such as strata fees, bills, interest and loan repayments, exceed the rental income it generates. This leaves the overall balance at a loss for you, which can be used to reduce your taxable income. But the bad news is, regardless of the reduced tax bill, you are still losing money.

Smart investors zig when everyone else is zagging.

And although the average investor tends to use negative gearing as a default because it’s more commonly understood, smart investors use a better way. Positive gearing is a savvy investment strategy that offers a lot of benefits – it may even help you achieve your financial goals much faster.

Positive gearing can be a savvy investment strategy that offers a lot of benefits – it may even help you achieve your financial goals much faster.

A positively geared property leaves you with a profit because your rental income exceeds all of the outgoing expenses from the property.

It’s this additional amount that can help you get ahead through the following four benefits.

#1: Earn a passive income

Unlike negative gearing, positive gearing usually leaves you at a surplus every time you receive your rental income.

You may then use this continuous flow of cash to make additional repayments to pay down your mortgage faster.

One of the foundations of a strong investment property portfolio is positive gearing

#2: It pays for itself

Due to this income, your investment property is paying your home loan itself.

This means you are far less likely to experience mortgage stress because you don’t have to draw from other forms of income to meet the repayments and interest charges.

#3: Increases your return on investment (ROI)

Why do you invest in property? To make a return that allows you to achieve your lifestyle and financial goals.

So, while negative gearing is a commonly used method to reduce tax, it only does this because your investment reduces your overall income. On the flip side, a positively geared property increases your ongoing income, which improves your overall gain from your investment.

A surplus is better than a deficit to ensure the highest return

#4: Helps you further expand your property portfolio

If your wealth-generation strategy is to acquire several properties over time, then the additional cash flow generated by your first property will boost your income, which can make it easier to secure another loan.

If you choose to redirect the additional income into paying down your mortgage faster, you may be able to access the equity from your first property to help you secure another property.

Could positive gearing benefit your property-investment strategy?

Positive gearing is a smart tactic to help you invest, grow your property portfolio and achieve your goals of financial freedom quicker. But it relies on you making clever decisions about selecting the right property in the ideal hot-spot suburb.

If you’re looking to find positively geared property and make more informed decisions about property investing, consider the TUDI platform.

TUDI’s investment technology does the hard work for you. The accessible and user-friendly platform empowers you to invest with confidence by giving you the insights you need to be successful in the property market.

Note: consider your own circumstances first and keep in mind that this is not intended to be considered financial advice. As with any investment, it’s important to weigh up the advantages and disadvantages of your chosen strategy so you can make the best decision for your specific circumstances. This information provided is general in nature and doesn’t take into account your individual situation.