Areas where rent outpaces mortgage costs
Negative gearing might be off the table for new property investors, but fresh data is showing certain areas don’t even need it.
The report by Cotality shows some properties can offer immediate cash flow with rent doing all the heavy lifting.
Positive gearing still in some regions. Getty
“When you have something that is negatively geared, basically your expenses are greater than your rental income,” Nine finance editor, Effie Zahos, told Today.
“So expenses to hold the property, interest, strata fees, you name it… you have a bit of a short-term loss and have to put some cash in there to top that up.”
Zahos explained positive gearing is actually the opposite, where traditionally investors weren’t too concerned about finding a “high-yield” property because they had the capital gains tax boost and negative gearing perks.
“But now with the proposal for that to actually go, what we could find is more investors will be looking at yield and how high is the rent they are going to get.
“Because banks certainly don’t look at negative gearing now with tax perks when they assess your serviceability, so they will look heavily at rental yield coming through.”
Zahos flagged some of the pros and cons of positive gearing, with pros including immediate cashflow, less out-of-pocket risk and affordability.
Whereas some of the cons included lower capital growth, a higher tax bill and vacancy risk.
“There is a lot of uncertainty here as well, investors are certainly pulling out and we’ll see more price drop,” Effie said.
“Sure we are seeing prices drop, but for first homebuyers to jump in, it’s still not that affordable, so say if property falls 10 per cent in the market, prices are skyrocketing so still affordability is a big issue.”
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