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Make the most out of the silly season and book your end/start-of-year review with the Capital Properties team

‘Tis the season to be jolly, and what better way to celebrate than by taking a moment to reflect on your property investment strategy with Capital Properties? As the year draws to an end and a new one about to begin, it’s the perfect time to evaluate your property investments, set new goals, and make any necessary adjustments so you can hit the ground running in 2024.

In this blog post, we invite you to join us for an end/start-of-year review to help secure your financial future for the years to come. So, grab a cold one and let’s explore why a property investment check-up is the best way to close out your year.

The Capital Properties team live and breathe property investment for ADF members, and it’s our mission to make sure we help you achieve your property investment goals to reach future financial security. Our FREE Capital Properties Discovery Session is a great place to start, and we have tools and strategies to help you every step of the way.

On the go? Here’s 30 seconds of take outs:

  • Capital Properties clients use proven property investment strategies to weather the storms and make the most of the opportunities in the Australian Property Market.
  • An end-of-year review will make sure you stay on the path to financial success. The review covers:
    • Lifestyle and financial goals
    • Assessment of current property portfolio
    • Optimisation of property investment strategy
    • New opportunities identified
    • Prep for tax season
  • We’ll also cover latest property data, market analysis, research as well as your cash flow position and explore the options available to you, whether you’re ready to grow your portfolio, or make changes to get you closer to that point.
  • Book your end-of-year review now so you can hit the ground running in 2024.

Keep reading >>

Looking back to look forward

Before we welcome in the new year, it’s only natural to look back at the past one and reflect on the successes and challenges we’ve faced. In 2023, Australian Defence Force (ADF) property investors encountered plenty of opportunities and challenges in the Australian property market. From the highs of unprecedented rental demand in some areas and attractive government initiatives, to the lows of building supply issues and soaring interest rates, we’ve had a hell of a ride.

Capital Properties clients have used our proven property investment strategies to weather the storms and stay ahead of the game with growing portfolios and strong capital growth across all their investments. And we want to see you continue to succeed in 2024 and beyond. That’s why we encourage you to take advantage of a Capital Properties end-of-year review and make sure you stay on the path to financial success.

Why an end-of year review?

The comprehensive Capital Properties end-of-year review will allow you to:

  1. Review your lifestyle and financial goals

It’s easy to get busy and bogged down in the craziness of day-to-day life, especially if they involve training, exercises, and deployments. So, it’s important to speak to someone with an objective view to make sure you are still in line with your goals.

  1. Assess your current property portfolio

Together we can analyse your current property investment(s), assess their performance, and make sure they still align with your financial and lifestyle objectives.

  1. Optimise your property investment strategy

We’ll make sure you stay on track by working with you to optimise your property investment strategy to maximise returns and minimise risks.

  1. Identify new opportunities

The Australian property market is constantly evolving. The Capital Properties experts will help you discover new opportunities that may be worth exploring in the coming year.

  1. Prepare for tax season

According to the Australian Taxation Office (ATO), 9 out of 10 rental property investors make errors in their tax returns, especially when it comes to interest deductions. The Capital Properties team can help you ensure your investments are structured in a tax-efficient manner to avoid facing the wrath of the ATO when it comes to tax time.

What does the end/start-of year review cover?

As well as making sure you have a clear vision of your goals and the strategy you need to get you there, our end of year review will cover some essentials such as:

  1. Latest property data and research

We’ll re-evaluate your investment property(s) cash flow position and comparative market analysis, including:

  • RPdata suburb and statistics reports for each property
  • Residex suburb reports
  • The latest Forecast ID demographic reports
  • Desktop and full valuations
  • Rental manager feedback and reviews
  • Vacancy rates
  1. Strategy development

We’ll look at the options available to you, whether you’re ready to grow your portfolio, or make changes to get you closer to that point. Our finance team will confirm your new borrowing capacity and discuss the next steps. If it suits you better, we can do all, or most of this, over the phone. Your options might include:

  • Option A. Capacity for a new purchase – If you’re in the position to explore your next property investment opportunity, we’ll help you get the ball rolling.
  • Option B. Increasing capacity – If you’re not ready for your next investment just yet we’ll share tips that will increase your capacity and help you get closer to your goals.

Option C. Consolidation – We can help you work out if you should consolidate your finance, find better interest rates, and reduce your investment/personal debt.

What’s next?

We know that the unique demands of Defence life mean you don’t always have time to stay updated and make sure your investment(s) is working the hardest for you. We created the Pinnacle Support Program to make sure you’re supported the whole way through your property investment journey. And we believe the end of the year is the perfect time to evaluate your property investments and set the course for the year ahead.

It’s also a chance for us to say thank you for your continued trust in our team. Your support is greatly valued, and we look forward to celebrating your successes in the years to come.

Get in touch now to book your end-of-year review and make sure you’re still on track to reach your financial and lifestyle goals.

If you’ve got some time, you can check out our FREE Property Investor Tools and Apps and download a copy of our book, Property Investment SOP  – essential reading for all property investors and first home buyers.

About this project

I’d been keeping an eye on these commercial sheds for a while as we’d often drive past on the way to school drop off.

My idea was to convert an Industrial Warehouse (concrete tilt slab construction) into office space!

These are the stages of the build so far, if you have any questions about this project email [email protected]

As part of our 2024 expansion, the Capital Properties Team is going back to the office!

Stage 1.

Installation of ‘corflute’ to protect the concrete polish.

Stage1v1

Stage 2.

Delivery of the flooring supports & Frames.

Stage2v1

Stage 3.

Mezzanine floor construction.

Stage3v1

Stage3.1v1

Stage 4.

Frame construction.

Stage4.1v1

Stage4v1

Stage 5.

Air Conditioning install.

Ac Install (1)

Ac Install (2)

Stage 6.

Air Conditioning frame & Ground Floor ceiling frame & ceiling battens.

 

Insulation (1)

Hallway Frame

Stage 7.

Insulation Install.

Insulation (4)

Insulation (7)

Stage 8.

Plaster Board install.

Plasterboard (1)

 

More to come soon, stay tuned…

Everything you need to know about property investment in a nutshell

It’s been proven time and time again that property investment is a sure-fire method of making the most of your Australian Defence Force (ADF) wages for future financial success. With informed decision-making, a solid understanding of the basics, and a proven investment strategy, property investment can provide an additional income and long-term wealth.

In this Property Investment 101 blog post, the experts at Capital Properties will cover all the basics you need to know about property investment in Australia. We’ll discuss why you need a savings plan, what your minimum savings amount should be and how and why you need to get pre-approval. As well as why you should engage a Buyers Agent, and lots of other vital information you’ll need before you can move forward with property investment.

Come along to a FREE Capital Properties Discovery Session that’ll take you through Property Investment 101 in the most efficient way. Our team works with ADF members who are just starting out, all the way through to helping our clients manage multi-million-dollar portfolios. The best time to start is now.

On the go? Here’s 30 seconds of take outs:

  • Start a savings plan by looking at your income & expenses, then set up a regular direct debit into a property investment fund.
  • Capital Properties recommends a minimum saving of 10% of the purchase price of the property.
  • Check out eligible Australian Defence Force (ADF) financial benefits.
  • Getting loan pre-approval is essential as it saves time, money & heartache.
  • Work with a Buyers Agent who understands the ADF lifestyle & someone who specialises in regional and local area investments.
  • Research: location, property type, rental yield, capital growth, building inspections & financing options.
  • Work out cash flow and investigate tax implications.
  • Continue to monitor and adapt your property investment strategy for future growth.

Keep reading >>

Why do you need a savings plan?

It’s essential to have a well-structured savings plan in place before you can even begin to think about where and when to invest.

As an ADF member, using your steady income to build your savings with the goal to invest is key to creating the future of your dreams. A savings plan helps you set realistic financial goals so you can know when you’ll have enough for a house deposit.

How to start a savings plan?

  • Read our ‘5 Top Tips to start your savings plan’ blog post.
  • Work out your current expenses, including rent/mortgage, energy bills, telephone & internet, medical & dental, groceries, car/transport costs, insurances etc. Capital Properties Budget Planner will help.
  • Once you’ve figured out your expenses, look at the surplus, or figure out where you can save some extra dollars, then set a savings goal for each fortnight (or week/ month).
  • Open a separate savings account to manage your property investment fund.
  • Set up a direct debit so that the money goes into that account before it gets spent.
  • Become familiar with your incomings/outgoings so you’ll learn how to manage potential investment costs.

How much of a deposit do you need for property investment?

As a general rule, banks will only lend first-time property investors money if they have between 5% to 20% of the purchase price of the home in genuine savings.

At Capital Properties, we recommend that potential investors save a minimum of 10% of the purchase price of the property to get started. 5% to cover the minimum deposit required to secure the home loan and the remaining 5% should cover the additional fees, such as legal fees, property inspections and potential renovations.

The more savings you have to invest, the better. One, it means you’ll pay less interest over time. And two, with a deposit of 20% or more, you won’t have to pay lenders mortgage insurance (LMI).

Australian Defence Force (ADF) financial benefits for property investment

Australian Defence Force (ADF) members are often eligible for financial benefits that can be used towards property investment. For example, the Home Purchase Assistance Scheme (HPAS), Home Purchase or Sale Expenses Allowance (HPSEA) and the Defence Home Ownership Assistance Scheme (DHOAS).

These benefits/incentives can help you secure a loan with lower interest rates and fewer fees. We’ve discussed these in more depth in the blog post: “Buying a house while in the Defence Force”.

Why you need pre-approval

We’ve written a whole blog post on pre-approval before: “Why being finance ready pays dividends”. In summary, pre-approval is confirmation from a lender that you’re eligible for a certain loan amount based on your financial situation, credit history, and ability to repay the loan. Getting pre-approval for the loan before you start searching for your ideal investment property will save you time, money and heartache.

The benefits of pre-approval

  • Pre-approval gives you a clear understanding of your budget, allowing you to narrow down your property search.
  • You have a much stronger negotiation position with pre-approval. Sellers often take pre-approved buyers more seriously as they’ve demonstrated their ability to secure financing.
  • With pre-approval, you can move quickly when you find the right property, reducing the risk of missing out on a good opportunity.

How to get pre-approval

  • Complete a finance application with your lender.
  • Provide supporting documents. That’s usually:
  • Proof of identification (driver’s licence, passport, birth cert. etc.)
  • Proof of employment/income (payslips, tax return, bank statements etc.)
  • Proof of genuine savings (deposits made over several years)
  • Overview of living expenses and any debts.
  • The lender will process your application. All going well you’ll be issued with a pre-approval letter within a couple of weeks (sometimes faster).
  • Pre-approvals typically last 3 – 6 months.

Working with a Buyers Agent

Navigating world of property investment can be overwhelming, especially for first-time investors and time-poor investors. This is where a Buyers Agent can provide invaluable help. Finding a Buyers Agent who understands your unique challenges as an ADF member and someone who specialises in investments (in regional and local area markets) are worth their weight in gold.

Why working with a Buyers Agent is a smart move:

  • Searching for the right property, attending inspections, and carrying out due diligence takes time that many ADF members don’t have. A Buyers Agent will navigate this for you.
  • Buyers Agents have in-depth knowledge of the local property market, including property values, trends, and growth potential. They’ll guide you to make informed property investment decisions.
  • Get access to off-market properties with superior investment potential.
  • Buyers Agents are skilled negotiators who can secure the best deal for you.
  • TheCapital Properties Buyers Agent service will help you find your ideal property and negotiate the lowest price and settlement with ease.

Research: Location & property.

Thorough research is the cornerstone of successful property investment. Before making any decisions, take the time to research various locations, property types, and market trends. Factors to consider include:

  • Location

Look for areas with strong rental demand, infrastructure development, and potential for capital growth. Proximity to amenities, public transport, schools, and employment hubs can significantly impact a property’s desirability. Think about trends driving the market, for example the recent push towards “Lifestyle and the property decision making process”.

 

  • Property type

Consider the type of property that will appeal to your ideal tenant. Houses, units and townhouses all offer different advantages and potential challenges.   Think about the number of rooms required and look for properties with features like air conditioning, off-street parking, and modern appliances that’ll appeal to those tenants. The ADF property buyer checklist will help with some of these decisions.

  • Rental yield

Calculate the potential rental income in comparison to the property’s purchase price. A higher rental yield = a more financially viable investment.

  • Capital growth

Research the capital growth of the area to determine its investment potential. While past performance won’t predict future results, it can provide insights into the market’s behaviour. Access the Capital Properties Australian Property Market Report for up-to-date property statistics.

  • Building inspection

Before you make an offer on an established property, make sure you get a building inspection. It’ll give you a clear idea of the property’s condition and leverage for negotiation if there’s any issues. Our blog post “Why use a building inspector when constructing” is a great place to start.

Property investment financing options

It’s essential to have a good understanding of your financing options. Different loan types can impact your cash flow, tax deductions, and overall financial position. Some common loan structures include:

  • Principal and interest loans (P&I)

In a P&I loan, you make regular payments that cover both the principal amount and interest, gradually reducing your outstanding debt over time.

  • Interest only loans

With an interest-only loan, you just pay the interest on the loan for a specified period (usually 1-5 years). This can free up cash flow for other investments but won’t reduce the principal amount.

  • Fixed vs variable interest rates

Fixed rate loans offer more certainty around repayments, while variable rates can fluctuate with market conditions.

  • Offset account

An offset account is a savings or transaction account linked to your home loan. The balance in the account offsets the loan principal, reducing the interest payable on the loan.

Property Investment cash flow and tax implications

As with any source of income, property investment comes with legal and tax implications that you need to be across. During a Capital Properties Strategy Session, we cover everything you need to know about managing cash flow and tax implications, including:

  • Income
  • Rental appraisal
  • Interest rates
  • Loan amount
  • Holding costs

Tax considerations:

  • Cash flow/gearing:

Where the rental return is less, the same as, or more than your expenses and its effect on your annual tax return. Read more in the post “Property cash flow or gearing, negative, neutral or positive”

  • Stamp duty:

A state-based tax on property transactions which depends on the property’s value and location.

  • Capital gains tax (CGT):

CGT is payable on the profit made from selling an investment property. The rate depends on your income and the length of time you’ve owned the property.

Ongoing Property Investment strategy

It’s essential to monitor and adapt your property investment strategy on a regular basis. You must be aware of tenants’ requirements, property maintenance, market trends, and keep on top of all incomings/outgoings associated with the property

As your financial situation evolves, you can start leveraging your existing property portfolio to expand your investments. This could involve refinancing to access equity or diversifying your portfolio with different property types or other locations.

If you’re still wondering where to start with property investment, the Capital Properties team can help you navigate the entire investment process. Start by booking into our free Discovery Sessions. This property investment 101 will help you make informed financial decisions, so that you can confidently navigate the property market and make the most of your investment opportunities.

Check out our FREE Property Investor Tools and Apps and download a copy of our book, Property Investment SOP  – essential reading for all property investors and first home buyers.

Take advantage of the Capital Properties Pinnacle Support Program

Are you On Track or off track to meet your goals?

So much has changed in the world of finance and property investment in the last couple of years. If you haven’t been keeping up with these changes, you might be missing out on some serious opportunities. Even if you’ve been staying up to date with our Capital Properties news posts, it’s important to make sure you’re still on track to meet YOUR goals.

The experts at Capital Properties recommend taking time at least once a year to meet and re-evaluate your property investment and long term financial and lifestyle goals. During this catch up we can make sure you’re on track to achieve your goals and are actively taking the next best steps to get you there. So, if you’re due for a review, don’t put it off a second longer. Book in here.

The Capital Properties Property Investment Tools & Apps and essential resources from our Capital Properties Pinnacle Support Program will help you take stock and make smart decisions for now and the long-term.

On the go? Here’s 30 seconds of take outs:

  • It’s vital to regularly review your progress against your goals. Make sure you’re on track and know the next steps to take to achieve your long-term vision.
  • Working on your financial, lifestyle and property goals can feel overwhelming. We’re here to help with a range of free tools and our Pinnacle Support Program review.
  • Our Pinnacle Support Program Review supports you to achieve what’s important to you – and it can all be done over the phone to fit in with your schedule.

Keep reading >>

Still set to achieve your goals?

Due for a review? We know that life gets busy, and the weeks turn into months so quickly, before you know it years can have flown by. It’s easy to feel overwhelmed with so much to keep on top of. Can you be sure that you’re consistently doing everything you need to maximise your potential and achieve your goals?

That’s where we can help. We developed the Capital Properties Pinnacle Support Program to make sure you stay on top of your game with as little effort as possible. If you’re not confidently answering these questions below, then get in touch for a review so we can make sure you’re still on track.

Ask yourself truthfully:

  • Am I clear on what my end goals look like?
  • Am I on track to achieve those goals?
  • When was the last time I updated my Asset and Liabilities spreadsheet?
  • Are my weekly, monthly, yearly tasks all set to achieve my goals?
  • When was the last time I did a desktop valuation / full valuation of my investment property?
  • Are my tax returns up to date?
  • Am I up to date with the latest statistics for my property’s suburb?
  • When was the last time I viewed a suburb profile for my property’s area?

Do I know what I need to do next to progress my goals?

Lifestyle goals changed?

Property investing is a journey not a destination. Some of your goals can take 10 to 20 years and it’s normal to feel some resistance along the way – that’s just life!

In the last few years, I’ve taken stock of my total property deals since I first began investing in 1998. From starting as an absolute novice to completing over $6million in property transactions, grossing over $2million. In my early days in the Navy, I couldn’t have dreamed of this kind of financial security. But I applied the Capital Properties Property Investment strategies and stuck to my goals, even when it wasn’t easy.  In fact, it’s during the tough times that these strategies and our expertise can really make the difference.

“When everything seems to be going against you remember that the airplane takes off against the wind, not with it.” Henry Ford

Setting goals and achieving them means more than making money. It’s helped me realise the lifelong dream I had to build my dream home. I’ve created generational wealth to make sure my family is looked after. And I’ve developed relationships with professionals that means Capital Properties continues to grow and thrive so we can share our success with you.

Let’s take stock

Even if you feel like you’re in a great place right now and your investment(s) is working hard for you, it’s worthwhile taking a moment to re-evaluate. Like the property investors hymn says “One property is good. Two is better. Three offers more opportunities. Four or more becomes a challenge to manage but really opens up your options and the ability to get set up.”

Review financial & lifestyle objectives

Simple and yet profound! Get started by taking our Investor self-evaluation test with our free Capital Properties Goal Setting Toolkit

  • Mind map your goals
  • Write a plan outlining how to achieve your goals

Create an action list

Complete an Assets and Liabilities Worksheet

This is the easiest way to get a visual on your inflows and outgoings. Your financial situation will become clear and you’ll be able to see where you need to make changes. Also, where you can make the most of opportunities. You’ll find the Capital Properties Net Asset Position Calculator and Assets & Liability Calculator here.

Take it further with the Pinnacle Support Program

Book in for your Pinnacle Support Program Client Review here. Here’s a taste of what you can expect:

– Latest property data and research

To help you evaluate your investment property(s) cash flow position and comparative market analysis, we’ll review the latest data including:

  • RPdata suburb and statistics reports for each property
  • Residex suburb reports
  • The latest Forecast ID demographic reports
  • Desktop and full valuations
  • Rental manager feedback and reviews

The latest vacancy rates data

– Strategy development

Once you know how your investment(s) has performed we’ll work out an individualised strategy to continue building your wealth. Our finance team will confirm your new borrowing capacity. From there we can discern the next best steps forward. That might look like one of the three options below.

  • Option A. Capacity for a new purchase

If you have capacity, we can start to explore property investment opportunities in line with your budget and goals. We know you’re busy, so much of the process can be executed over the phone to work within your Defence Force schedule.

  • Option B. Increasing capacity

If your current situation doesn’t allow you to make your next investment just yet we’ll give you some steps to implement, such as tenancy and maintenance tips that will increase your capacity and help you get closer to what’s important to you.

  • Option C. Consolidation

You might want to consolidate your finance, find better than your current interest rates and reduce your investment/personal debt. Our finance team can assist you with negotiating interest rates directly with the bank and/or refinancing your current loans.

Again, if it suits you better and to save your valuable time, we can do all, or most of this over the phone.

The next best step?

We want you to realise your financial and lifestyle goals using our tried and tested property investment strategies. And we know that the unique demands of Defence life mean you don’t always have time to stay updated and make sure your investment(s) is working the hardest for you.

Our Pinnacle Support Program is designed to make this process as easy and efficient as possible. After completing the Pinnacle Support Program Client Review you’ll have a clearer vision of your current situation and what’s important for you do on a day to day basis to achieve your goals. As the proverb says: ‘Iron sharpens iron, so one person sharpens another’. So, if you’re due for a review, the sooner we get to it the better.

We designed our Capital Properties Switched-On Strategy Series and Capital Properties Pinnacle Support Program for you. Along with free investor tools like our Property Investor – Self Evaluation Tool, we’ll make sure you reach your goals.

Call us on 1300 653 352 to get the ball rolling.

What is gearing?

In property investment, the term ‘gearing’ describes borrowing money to buy a property. In other words, if you take out a loan to buy a rental property, your investment is geared. Most investors use some gearing – aka, a loan or mortgage, to fund their rental property.

Gearing also determines the cashflow of your investment. Cashflow is the amount of money you have when you’ve received rent from your tenant minus the expenses associated with the property. In summary: cashflow = total rental income – total rental property expenses. In this blog post, we’ll explore the concepts of negative, neutral, or positive gearing and cashflow and explain what it means for property investment.

Positive, neutral and negative gearing strategies have different benefits and risks. So, making the decision about how to gear your property should be made according to your personal circumstances, risk tolerances, current income and property investment goals. We can help you decide what which option is best for you at our free Capital Properties Discovery Session.

On the go? Here’s 30 seconds of take outs:

  • Gearing describesborrowing money to buy an asset.
  • Cashflow = total rental income – total rental property expenses.
  • There are 3 types of gearing: positive, neutral and negative.
  • Positively geared = the rental return is more than your expenses.
    • Pros = Positive cash flow, great for investors, passive income.
    • Cons = Taxed, less positively geared properties, less capital growth.
  • Negatively geared = rental return is less than expenses.
    • Pros = Long-term capital growth, tax deduction & high rental demand
    • Cons = Capital loss, limited cashflow & potentially more volatile.
  • Neutrally geared= the income and expenses are equal.
    • Pros = Tax neutral, less risk, great for investing with super.
    • Cons = Hard to maintain, neutral cashflow, unpredictable.
  • When you sell the property for profit you’ll have to pay capital gains tax.

Keep reading >>

Why is ‘gearing’ important?

When you borrow funds to invest in an investment property, the aim is to generate an income from the asset. This income might come from the rent, or capital gains, or a combination of both.

The income earned will either positively, negatively or neutrally geared, depending on the amount you are paying back to your lender and other expenses.

A positively geared property means that your rental return (i.e. the rental income you receive from your tenants) is higher than your interest repayments and other property-related expenses.

A negatively geared property means your rental return is less than the amount you must pay on interest repayments and property-related expenses.

A property is neutrally geared if the income and expenses are equal and balance each other out.

Pros & cons of NEGATIVE gearing

Negative gearing happens when the rental income generated by an investment property is less than the expenses for owning and maintaining the property. Although this might seem like a loss when you have to pay money out of your own pocket, there are some immediate and long-term benefits to negative gearing, as long as you can confidently cover the costs through other investments or your Defence Force income.

Pros of negative gearing

Long-term capital growth

Many investors will purchase a property in a location with strong predicted future growth (usually between 7 to 10 years) so when it grows in value, they can sell it for a profit. With the right property, the gains from capital appreciation will outweigh the losses over the previous years.

Tax deduction

One of the main advantages of negatively gearing an investment property is the ability to offset any loss incurred during that financial year against your salary and any other income you earn. This reduces your overall taxable income and how much tax you have to pay.

You can claim tax deductions on depreciation on the actual property, building works and maintenance, capital goods e.g. dishwasher or washing machine, property management fees, body corporate fees, insurances, land tax, stamp duty, mortgage fees, council and water rates etc. In many cases, the tax savings can be greater than the total net loss of the negatively geared property.

Low rents = high demand

Maintaining lower rents helps to create great long-term relationships between tenants and landlords, resulting in less agency fees and costs to advertise for new tenants. It usually means that the property is less likely to be vacant for long periods of time.

Note, in Australia, there have been calls (in particular by the Greens party) to phase out negative gearing in order to address the housing crisis. But the Albanese government is clear that the policy is not up for review, saying in a memo We have no plans to change negative gearing rules, and don’t intend to reheat policies from the 2019 election”.

Cons of negative gearing

Capital loss

Although properties will usually experience capital growth, it’s possible that the property market could fall in the area you invest in. That’s why it’s key to do your research before you invest. Our experts write blog posts like “How to buy well” to help you with this, though a one on one chat with our Buyer’s Agent will be even better. 

Limited cash flow

If you’re highly geared, you’re more vulnerable to rate rises, which can tighten your cash flow. Less cash flow also means a reduction in your borrowing capacity, making it harder to grow your portfolio.

Potentially more volatile

If you lose your main source of income or can’t find tenants for an extended period of time – you may not be able to cover your loan and interest repayments. Defaulting on payments means increased fees and could even result in having your property repossessed.

Pros & cons of NEUTRAL gearing

Neutral gearing is also known as break-even gearing or cashflow-neutral. This happens when the rental income just covers the expenses associated with the investment property. There may be a small loss or profit, but it’s insignificant enough to make any changes to your tax status. In reality though, neural gearing is a strategy that’s difficult to maintain due to fluctuations in income and expenses.

Pros of neutral gearing

Tax neutral

Neutral gearing doesn’t provide immediate tax benefits in the same way as negative gearing, however the interest and other charges involved with borrowing money can be deducted from your overall taxable income. If your income and spending remains the same, there will be no change to your tax status.

Less risk

In a neutrally geared property, there are little to no costs related to its upkeep. This reduces the immediate financial burden, allows a more predictable cashflow and is an attractive option for risk-averse multi-property investors who stand to benefit from capital gains. 

Great use of super

Neutral gearing works well when you’re investing through a self-managed super fund (SMSF), as it doesn’t reduce the fund’s wealth.

Cons of neutral gearing

Hard to maintain

Neutral gearing doesn’t usually happen naturally as there are always going to be fluctuations in rates, expenses, tenancies etc. Unless you’re a seasoned property investor with a significant property investment portfolio and a flexible accountant, it’s unlikely you’ll be able to maintain neutral gearing consistently.

Neutral gearing – neutral cashflow

If you’re not prepared for changes, e.g. increasing rates if your loan’s coming off a fixed rate, managing cashflow in a neutrally geared property can be challenging. You could inadvertently end up in a negatively geared situation and struggle to meet the demand of the increased expenses.

Unpredictable

No matter how stable your current income and circumstances, there’s always a possibility that something might change and create a very different financial situation. Think illness, divorce etc. Inadvertently falling below the minimum threshold and/or having to default on your loan might mean that you’ll have to make an immediate additional cash deposit or sell other investments to cover penalties. Your lender could also ask for the loan to be repaid in full immediately.

Pros & cons of POSITIVE gearing

When the rental income from an investment property exceeds the expenses, this is called positive gearing. That means the rental payments from your tenants will cover all maintenance costs, mortgage fees, interest payments etc, as well as an amount of superfluous cash!

Pros of positive gearing

Positive gearing = more cash flow

Positive gearing leads to positive cash flow and ongoing profits which can be a useful income stream for investors. That immediate income can be used to top up daily expenses, pay down the mortgage, put into savings, or re-invested. A positive cash flow also means less pressure if your financial circumstances change.

Great for investors

Positively geared properties are considered less risky than negatively geared properties and that makes them highly attractive investments. Investors with positively geared properties will usually find it easier to secure another home loan, which will help to expand their property investment portfolios.

Passive income

Buying a positively geared investment property means that you’re able to generate a steady income stream while still being able to benefit from the property’s long-term capital growth.

Taxable rental income

When your property is positively geared, the net rental income is subject to income tax, along with your other sources of income, so you can expect a hit at the end of the year. However, you can claim on depreciation, mortgage interest and any rental expenses to maximise your returns.

Finding positively geared properties

In Australia, 60% of investment properties are negatively geared. So positively geared properties are in high demand. And of course, high demand = higher prices and that often means lower rental yields. Therefore, it’s vital to consider if the cash flow covers interest rate fluctuations, vacancy periods, maintenance costs etc.

Less capital growth

Positively geared properties often tend to be in rural or regional areas, which may not deliver the same capital growth.

Consider capital gains tax (CGT)

We can’t discuss gearing without quickly referring to capital gains tax. Just as we pay tax on any income, we must also pay tax on any net profit we make when we sell a property. As the profit is generally a capital gain, the tax on this profit is called the capital gains tax (CGT).

The amount of CGT we pay depends on multiple factors. For example:

  • The property purchase price.
  • Time of ownership– You may be eligible for a discount on your CGT if you sell for a profit after more than a year of ownership. Note, CGT does not apply to your primary residence if it hasn’t generated an income.
  • Property sale price.
  • Your current taxable income. Capital gains are taxed at the same rate as taxable income.

Other relevant costs = purchase or sale costs including renovations or marketing.

So, what’s best for you? Negative, Neutral, or Positive (Cashflow)

Gearing plays a vital role in property investment, and understanding gearing and cashflow is vital for ADF members to make informed decisions. Negative, neutral, and positive gearing each have their own advantages and disadvantages and in an ideal world, a well-balanced investment portfolio might contain each. Ultimately, choosing the best gearing depends on your individual circumstances and investment goals.

At Capital Properties, our experts work with you to thoroughly assess your personal financial situation, including your income, expenses, and ability to service loans. As well as determining your risk tolerance and long-term financial goals. We’ll help you evaluate the current property market and best potential growth prospects and understand the impact of negative, neutral, or positive gearing on your tax position.

Our mission is to make sure you have the knowledge, confidence and tools to successfully navigate property investment alongside your commitment to the Australian Defence Force for financial future security.

Capital Properties

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