PROPERTY INVESTMENT SERIES: 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 if cash flow is positive, you want to make sure you’re operating in this space.
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.
How Does It Work?
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, the property’s going to have two forms of income, a rent return and a tax return. When you combine those two together, they’re going to go up a lot quicker than what the costs are going to be.
When you 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 a longer period of time, so as it can go up in value. It’s completely fine for a property to be $40-$50 a week negatively geared, but when you get $6,000 back in your tax return, it might be $50 a week positive cash flow.
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:
Watch it on YOUTUBE
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