Negatively geared property is used as a growth strategy. In areas where good capital growth is acquired it is difficult to find rental income that covers property ownership costs. In this respect, the amount of money to hold the property needs to come from elsewhere, usually your pocket.
Negatively geared properties can become positively geared over the longer term by means such as paying down the mortgage in time, possibly decreasing the payment amount with refinancing, rents increase over time increasing income or you provide a larger deposit decreasing the borrowed amount. These are however usually longer-term options.
The main goal with negatively geared property is that it is in a high growth area and will increase significantly in value over time. When considering this strategy, particular attention must be paid to Capital Gains Tax on sale as this can be a significant amount.
If your portfolio overall is highly positive geared, a negatively geared property can be used to balance the tax effect on earnings, thereby providing not only tax incentives, but a property with good growth prospects.
Positive and negative geared properties used in the union are a very effective strategy.
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