Key Considerations Before Using Negative Gearing

Careful thought must be invested before you make a decision to acquire a rental property using negative gearing. This article discusses some of the considerations you need to have in mind prior to benefiting from negative gearing.

Additional Income Sources You should assess your other sources of income before you acquire a rental property whose income will not be sufficient to meet the loan repayment requirements in addition to meeting the other costs of maintaining that property. That shortfall must be covered from other sources, or else the lender will foreclose the property. Make sure that your other income sources, such as dividends from company shares, can cover the shortfall until the property becomes profitable.

Ownership Duration Think about your investment strategy before you opt for negative gearing. This objective consideration is vital because it may be hard for you to sell a property that is making losses. Negative gearing is therefore appropriate for people who intend to keep the property for the medium- to long-term. Such people should have the resources to cover the shortfall referred to earlier.

Suitability of the Property Negative gearing can produce real gains if the property appreciates in value during the time when it is making losses. An investor is therefore tasked with conducting ample research in order to select properties that are in locations which are appreciating rapidly. The rental properties should also be in a condition that can be attractive to renters so that occupancy is assured at all times. Negative gearing can turn into a nightmare if you don't select the right property in the right location.

Appropriate Tax Advice Talk to several tax service providers about the applicable tax provisions that you need to consider when planning to benefit from negative gearing. This advice is important because you may have some misconceptions about the eligibility of your other income sources, and yet some of those sources may not qualify for exemption when negative gearing is being used to offset the losses of the rental property. Timely tax advice about negative gearing can therefore save you from the huge losses that you would have suffered in case you were unable to take advantage of the tax benefits of negative gearing.

As you can see, negative gearing is a double-edged sword. Get expert help so that you can have professionals to oversee every step of your investment journey using negative gearing. The cost of paying those professionals will pale in comparison to the eventual benefits that accrue from their involvement in your investment decisions.