Investing in Property? What You Need to Know About Gearing

Like any financially savvy doctor, you might be looking to invest in property. Property can certainly be a fantastic investment to make, as it tends to increase in value and offers a strong return on your investment. It can also be less risky than investing in stocks or other investments. However, gearing is one thing you will need to understand to maximise your financial success and your return on investment.

Gearing is when you take out a loan to fund your investment. There are three different types of gearing: negative gearing (where the interest on your loan is greater than the income you receive from your property), neutral gearing (where the interest on your loan is the same as the income you receive), and positive gearing (where the interest on your loan is less than the income you receive).

Like most potential investors, you would probably assume that positive gearing is best, because it will mean you’re making a profit on your property. However, negative gearing can actually be a big positive, because losses resulting from negative gearing are able to be claimed as a deduction from your income when it comes to tax time. This will help you to minimise your overall tax bill. Also,even though it might seem like you’re operating at a loss at first, negative gearing can definitely still grow your wealth. This is because you will still be able to grow your finances through capital growth when the property increases in value. When this happens, the other losses will balance out so you are still making a profit.

For these two reasons, a negatively geared property investment can be an enticing prospect for doctors and other high-income earners who are looking to make low-risk investments.

Gearing can be a complicated and complex concept, which is why we would always recommend consulting with an experienced financial professional before you proceed. For example, you will need to think about things like:

• Expenses – what expenses are involved, and what can you claim back as a deduction?

• Debt – how can you structure this to maximise your deductions and pay off your debt as quickly as possible?

• Asset protection – what are the risks, and how can you protect yourself and your assets legally?

• Tax rates – how will your investment impact your tax rate, and will this benefit you?

• Capital gains – what will you be liable for when you decide to sell?

• Land tax – how much is payable, and where does this factor into your investment strategy?

• Depreciation – what does this look like, and does this reflect the property’s condition?

Your financial advisor will be able to help you to develop a property investment strategy that works in your best financial interests. They will also be able to help you identify your goals for your property investment, find a good property that promises a good return on investment, and find a loan or finance option that fits with the size of your deposit and current financial situation.

At Medical Wealth Management, we have a team of highly skilled and experienced financial professionals who are very knowledgeable about the many different factors that influence the success of property investments. To find out more about how we can help you to maximise the success of your property investment, book an appointment with our investments team today.