Negative Gearing vs. Positive Cash Flow | Property Investment Strategies

Video Transcript

Robbie:

Hey, you might have heard me say it’s super important that you get two forms of guaranteed income when you buy an investment property, rent return and tax return. But there’s also a couple of really important terms that we’re going to use now, which is gearing and cashflow. Let me sort of go through that with you.

And you’ll see how important getting the rent return is to complement the tax return that you have come your way. So we got dollars down the side and time down the bottom. Now the costs of operating your property portfolio or each individual property are going to naturally go up in time, consumer price index, inflation, et cetera, et cetera.

But the rents that you receive and the tax return that you receive, as you can see on the screen there, will go up at a much faster rate. Case in point, we’ve got a bunch of properties that have just finished being built for some of our clients. They basically took the property off the market 18 months ago, waited six months for land registration.

Property’s been built over the last nine or 10 months. They were expecting to get 400 bucks a week rent. They actually got 550 bucks a week rent.

Many of you have seen some of the success stories on our Facebook page and the rest of the social media. So what I’m talking about, when you buy in the right locations, seven ingredients to a healthy property market, your rental income and the capital growth will also go up based on supply and demand. So that’s what it sort of looks like.

You can see you’ll have a breakeven point, a negative point to the left, and of course a positive point to the right. Now here’s the thing. When you have your rental return come in and you’ve got all the expenses of your property, we’re talking the rental repayments, property management, rates, insurance, any maintenance, whatever it’s going to be.

If the rent does not cover all of those costs, you can say that your property is negatively geared to the tune of say 135 bucks a week. All of you that are certainly going to enter into the Axon programme, you can handle 135 bucks a week. Now remember, rent return, tax return, when you get your $7,500 back in tax, guess what? It now flips it across into the positive space.

So what does that mean? It’s really important to understand that gearing is before tax. So what I’m talking about here is this property is negatively geared, but cashflow positive. And as you can see on the side there, it’s absolutely viable for a property to be negatively geared and cashflow positive.

Now this is based on a 20% deposit. If you’ve got a 10% deposit, it sort of basically works out to be about 165 bucks a week negatively geared. And then you might end up pretty much on the line as far as neutral or maybe slightly negative or positive cashflow.

Regardless, when you factor into the two forms of your income, rent and tax, even if you’ve got to pay 50 bucks a week to hold a $600,000 property asset in the market going up in value, anyone can do that. So it’s super important to understand the differences between negative and positive gearing and cashflow. And this is the way to do it.