If you don’t buy well and your property rental doesn’t cover all your expenses, you’ll have to make up the shortfall from your own pocket.
A positive cash flow property covers all expenses. Any spare income can be used as a deposit on your next property.
Tip: If you want to build a property portfolio it’s a good idea to get a fixed rate ‘interest only’ loan. Paying principal early on will reduce surplus income and is likely to impact on your ability to borrow and expand, as will insufficent equity.
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Negative gearing, on the other hand, works by making a loss on property and claiming an after-tax refund for this. The trouble with this approach is that you are losing money.
We were making money with someone else’s money and we could’ve kept going except for the fact that there was a downturn in the market and it got progressively harder to purchase properties under market value.
Now the markets have crashed those good times to purchase real estate are here again. Do your sums and happy buying.
Disclaimer: These techniques worked well for us however we would always recommend getting professional advice before proceeding with any purchase.