Positive Geared Property Explained: A Smarter Way to Invest

Understanding Positive Geared Cash Flow Property

Are you thinking about your first real estate investment? Do you want to generate a steady rental income and see your property value grow without any major risks? Then understanding positive and negative gearing is an absolute must. Knowing the difference between the two can help you make informed decisions and set yourself up for success. 

In this blog, we will lay down the key differences between positive and negative geared properties, explain how they impact your finances, and provide tips on choosing the right investment to match your financial goals.

What is Positive Gearing?

Meaning

Simply put, positive gearing occurs when your investment property’s income surpasses all of the costs associated with its ownership and upkeep. Because it makes money and adds to the positive cash flow of investments, your property is now an asset rather than a liability. 

You can then use this extra money to help pay off your debt more quickly or even to help cover some of your living expenses. Sounds amazing, right?

Moreover, real estate investors prefer a property that pays for itself from day one. That’s why positively geared properties are so popular and are considered a safer and more reliable investment. 

Positive Gearing vs Negative Gearing

Now, let’s break down the difference between positive and negative gearing for a better understanding:

Positive Gearing
If the rent you receive from your investment property is greater than all the property-related expenses combined, your investment is positively geared. This basically means at the end of each month you have a positive cash flow coming from your property, that can either be saved or reinvested somewhere else.

Negative Gearing
Negative gearing happens when your property expenses are more than the rent you are receiving for it– meaning you have to pay for those expenses from your own pocket. While it may sound risky, investors often use negatively geared properties to reduce their taxable income and in hope of future gains.

Despite the tax benefits that we just mentioned, negatively geared properties come with some risks too. The biggest risk is that you are relying on the property’s value to increase over time– but there’s no guarantee it will.

Positive geared properties on the other hand provide you with both options. You can continue to invest in the property while being cash flow positive at the same time.

Why Positive Cash Flow Properties Are a Smart Investment

Consistent Passive Income & Financial Freedom

The biggest and most sought-after benefit of positive geared properties is the immediate positive cash flow they provide to the investor– making it a reliable and consistent source of income for them. 

It’s also the reason why a lot of people choose such properties over other volatile options like stocks or bonds.

You can use this passive income to:

• Pay off your mortgage faster.
• Reinvest in other properties to grow your portfolio.
• Fund your lifestyle expenses and for an early retirement.

Investing in positive geared properties is seriously a game-changer. It’s not only a great way to replace your current salary– it can be your path to financial freedom too.

Reduced Risk & Better Affordability

If you are a first time investor, then a positive geared property is your best option since it carries lower risk compared to negative geared properties and also provides you with additional income.

What’s more? With a positive geared property you no longer have to worry about mortgage shortfalls or wait for property prices to rise.

Another benefit of positively geared properties is that, even if you need cash for maintenance, you can cover it with rental income. This means you won’t have to dip into personal savings or take out a loan, leading to better financial management and reduced risk.

Tax Benefits & Long-Term Growth Potential

Apart from the cash flow benefits that come with positively geared properties, offer some other attractive benefits too. Here’s what you can claim as an investor:

• Tax deductions on expenses like property management fees, maintenance, and interest on loans.

• Depreciation benefits that allow you to offset taxable income. With time, your rental income will keep on increasing. How amazing is that?

To sum it up, positively geared properties benefit you both– in the short-term as well as in the long run.

How to Find the Best Positive Geared Properties

Key Factors to Consider 

Now comes the million dollar question: How do you find these positive geared properties?

Well, here’s what to do and some key factors to consider:

• Always look for an area with growing job opportunities and a well developed (or developing) infrastructure. These factors ensure that demand for rentals will be there.
  
• Compare the rental income to the purchase price. Higher rental yields increase the chances of achieving positive gearing.
  
• If an area has a low vacancy rate, it means the demand is high and will most likely remain high. A property in such an area will be a smart and safe investment.
  
• Properties that are not too expensive compared to the rent they can generate are best for making extra income (positive gearing).

Tools & Strategies to Identify Profitable Investments

Finding a high-quality positively geared property isn’t as easy as it sounds, it requires proper research, strategy, and the right tools. 

Here are some strategies to help you identify the best opportunities:

• Use property investment calculators to estimate rental yield and expenses before sealing the deal.
  
• Research real estate market reports for data on high-growth suburbs and rental demand.
  
• Use online platforms to gather insights into neighbourhood trends, rental yields, and investment hotspots.
  
• Network with real estate agents and investors who specialize in positive cash flow properties to get firsthand recommendations.

By combining data-driven research with market insights, you can easily find properties that generate consistent income while reducing financial risks.

Red Flags & Mistakes to Avoid

Last but not least, here are some mistakes to watch out for when looking for positive geared properties:

• Overestimating rental income: Always check if the property can really regenerate income that exceeds its expenses.
  
• Overpaying for a property: A property may be overpriced because of a sudden rise in demand caused by certain events or external factors that may not last for long.
  
• Ignoring risks associated with the chosen location: Think carefully before investing in areas with high crime rates as it may be harder to find tenants down the line. 

Considering these factors will ensure your investment remains profitable and can be sold easily in the future in case you decide to do so.

Final thoughts: Is positive geared property right for you?

Who Should Invest in Positive Cash Flow Properties?

Positive geared properties are the right choice for you if:

• You’re new to real estate and looking to purchase your first property.
  It really is the perfect choice for you as it’s safe and gives you immediate returns.

• You want to build a stream of passive income.
  Since positively geared properties are profitable from day one, they provide disposable income without any extra work and continue to grow in the long-term.

• You want to store your wealth in a safe place.
  If you want to safeguard your wealth from inflation and market fluctuations, these properties should be your top choice.

How to Build a Long-Term Wealth Strategy

Owning a positively geared property is a good start, but if you want to maximize your returns and achieve complete financial freedom, you’ll need a solid strategy in hand.

Here’s how to do it:

• Reinvest your excess income into your current property by adding more facilities so you can charge higher rentals.

• Conduct regular assessments of your portfolio to verify the performance of your properties and make necessary adjustments to your strategies. 

• Look out for areas where the job market is growing and new projects are underway.

A careful analysis of the market situation combined with smart investment strategies will definitely make sure your properties grow over time and give you the desired returns. 

Yes, it’s that simple.

Are you ready to buy a positive geared property backed by expert insights, market knowledge, and smart strategies? Consider using a buyer’s agent! InvestorKit is a data-driven buyers’ agency that dedicated ourselves to understanding Australia’s property markets through data. 

We help our clients find and purchase incredible positive geared properties across Australia. No matter your investment goal, our expert team is here to guide you every step of the way. Sounds good? Contact us to learn more by clicking here and requesting your 15-minute FREE no-obligation discovery call!

Let’s build your portfolio together!

References

[1] – NAB.com.au – A guide to gearing in property investment

[2] – PurpleRealtors.com – Understanding property investment strategies

[3] – PRD.com.au – The pros and cons of positive gearing[4] – LinkedIn.com – Common pitfalls in real estate investing and how to avoid them