Property Investment Series: Video 7
Negative Gearing and Positive Cash Flow
The terms ‘negative gearing‘ and ‘positive cash flow‘ get thrown around a lot in the property investment industry. Broken down simply, gearing is before tax, cash flow is after tax.
Don’t be concerned if you’ve got a negatively geared property, but is cashflow positive, you want to make sure you’re operating in this space.
If you are not quite sure about what mindset to have about either of these terms, Property Coach Robbie explains the differences between both options in this short video.
I bet you guys are just like me. You’re sick of hearing about positive gearing, cash flow positive, how it all works. I just want to give you a really, really simple explanation right now. We’ve got dollars up the side here, time down the bottom. Now when you have an investment property, the cost of that property going to go up with CPI. That’s a bit of a given. Now, property’s going to have two forms of income, the rent return and the tax return. Now, when you combine those two together, they’re going to go up a lot quicker than what the costs are going to be.
On the left hand side to break even, you got a negative space. On the right hand side to break even, you got a positive space. Now when you’re first buy a property and then the first couple of years, we’re just focusing on having a good combination between rent and tax to hold the property over longer period of time, so as it can go up in value. It’s completely fine for a property to be 40, 50 bucks a week negatively geared, but when you get six, six and a half thousand dollars back in your tax return, it might be 30, 40, 50 bucks a week positive cashflow.
Super important to understand. Gearing is before tax, cash flow is after tax. Don’t be concerned if you’ve got a negatively geared property, but is cashflow positive, you want to make sure you’re operating in this space. Property’s got two forms of income. At the end of the day, rent and tax are just holding strategies. All you’re trying to do is buy time, get your mindset right.
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