When deciding to participate in the property market in Sydney it is essential to first gain expert advice on the best way for you to invest. There are many out there who believe that negative gearing is better than positive gearing whilst of course there are others who believe the opposite is the case. So which way is best? The answer is both as they each have their advantages and disadvantages.
The Difference between Negative and Positive Gearing
Positive Gearing has been the buzzword of recent investment times. Many believe that if you are going to invest in property it should begin to show a return or yield immediately. Whilst this is a good strategy for your pocket for obvious reasons, the disadvantage will also be that you will have to pay tax on this income as opposed to claiming a loss with the Australia Taxation Office (ATO).
This style of investment also requires that you contribute a larger deposit into the deal. This is referred to as equity. It may be that if deposit monies were split in half or more, several properties may be purchased with the same deposit. This would mean that property purchased would negatively be geared but the advantages of several properties all gaining capital growth is undeniable.
Negative gearing is a term used when the income received for a particular investment property is less than the expenses to hold said property. This includes interest that accrues on the loan and all outgoing costs such as council rates and water, insurance, strata and property management fees.
Whilst it may seem this would be a foolish investment, there are definite benefits to this system. The first is that you do not need to contribute such a large deposit to get into the property market. When it comes to completing your tax return you are able to claim a loss and therefore claim a portion of your tax (equivalent to your marginal tax rate) as a refund from the ATO. This means that the ATO is helping to fund your investment purchase.
Diverse Styles of Investor
The only other thing you need to consider when investing into the property market is what sort of property in Sydney it is you wish to invest in. Some investors prefer commercial property; some prefer units in the Central Business District whilst others prefer a house and land. As you are able to claim a depreciation of many items within the property, it is best to purchase new property as opposed to old property.
Expert home valuations are also essential.