Why positive gearing could be a smarter way to run your investment

Positive gearing has many benefits - so why is it overlooked by so many property investors?

The property investment market has undergone a number of changes this past year, with the Reserve Bank of New Zealand (RBNZ) telling the banks they can’t lend to investors with a deposit of less than 40 per cent.

As this is a hot topic, those looking to expand or grow their investment portfolio should be familiar with all the options available to them to better manage their investment, like negative gearing (claiming the loss made on the investment as a tax deduction).

However, while most people know the benefits of negative gearing, positive gearing is somewhat overlooked.

The positive points

The main benefit to positive gearing is that you make you a profit. While, it’s true that this income will attract more tax, it also creates greater opportunities.

For example:

• You can use these profits to invest in other assets like shares, additional property or home renovations to increase the value of the property

• Being positively geared gives investors the option to use profits to pay down the mortgage principal. Most investment loans are interest only which means when the value of the house goes up the principal on the loan will remain the same throughout the life of the interest only period.

The negative points

Just like any investment, the income you make through a positively geared property attracts tax. With this in mind, you should remember to put aside a portion of any yearly profits made through the property to cover any tax bill at the end of each year.

If you are considering short-term leasing, where you can charge more per night in the aim of hopefully increasing revenue, remember you will need to manage the property, including marketing, cleaning and booking schedules, which can be very time consuming.

Managing your own property also comes with myriad issues including filtering tenants, resolving any issues that arise and ensuring you have enough bookings to cover costs. You could save yourself a lot of time and effort by engaging a property manager with the right experience and knowledge to handle your investment.

What should you do if you want to positively gear a property?

Websites like HomeAway and Airbnb exist to help homeowners manage their short term rental properties.

Similarly, the property rental site Bookabach, which now offers CBD as well as seaside properties, allows property owners to either pay a commission per booking or buy an annual subscription pack if the house is near the coast.

These costs cover marketing for the property, as Bookabach advertises its listed properties on Facebook and Twitter, and provides home owners with a greater leasing opportunity.

There are many options that exist if you are looking to positively gear a property. However, if you’re too busy to manage the property yourself, it might be a good idea to consider engaging a property manager.

Mike Pero (New Zealand) Ltd Copyright © 2020 All rights reserved | Lending and policy criteria and terms and conditions apply. Content on this website is general in nature and is not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on this content and should always seek specific financial advice appropriate to their own individual circumstances.