They’re considered the holy grail of real estate investments: properties that generate such high rental incomes, they pay for themselves, and then some. But when investors talk of buying positively geared property, where are they looking – and do these types of investments still really exist?
A positively geared property investment is when all of the mortgage interest payments, expenses, council rates, insurance and any other costs related to the property are paid for from the rental return received.
“It means that at the end of every week, after paying your entire mortgage interest on the investment property and other related expenses, you still have money going into your pocket, so it does not cost you anything to hold this property,” explains Mark Robinson and Chris Pullen from Acquire Wealth Solutions in Queensland.
The trade-off for this is that sometimes, properties that are positively geared “do not have as good capital growth returns as a negatively geared property”.
However, they believe you can be smarter about negatively geared property – which usually attracts higher levels of growth – by adopting strategies that turn it into a positively geared investment.
“You could rent it out by the room to students, add value to the home, build a granny flat for extra income, or perform a cosmetic renovation to increase rent,” they suggest.
Tanja Kraus, author of Maximum Returns, Minimum Concerns: A Guide to Successful Property Investment, is an investor and a property manager with over 15 years experience, and she is a proponent of buying positively geared investments.
“I am purchasing what I consider to be positively geared properties at the moment – as long as the repayments, rates and insurance are covered, I’m happy,” she says.
“If repairs come up then this may need to come out of my pocket, so technically this may not be considered positively geared, but this property is a lot closer to that goal than [with a negatively geared investment] where you are chipping in for the mortgage.”
One of the easy ways to find a positively geared investment is to kick in a large deposit – “If you are going to put a 50% deposit down on a property, chances are it will be positively geared,” Kraus says – but if you’re seeking a traditional positively geared investment without handing over a wad of cash, you may be in luck.
In the current real estate market, vendors are becoming increasingly flexible on price and with interest rates set to come down, the costs of owning an investment property are becoming more affordable.
“If you hunt around enough,” Kraus adds, “there are still positively geared options available.”