Positive gearing your investment property is possible and can be a great way to increase your passive income and allow you to purchase more investment properties.
It can also give you a greater return on investment as you are not only making money through capital gains but you are also making money through your monthly positive cash flow.
It can be difficult to purchase a property that is positively geared from the moment you purchase it. More often than not you will have to create a positive cash flow.
Below are the 5 ways you can create positive gearing for your investment properties. For more detailed information on investing in positive cash flow properties sign up for our free Property Investor’s Master Class.
Use Positive Gearing In The First Place
the easiest way to create a positively geared investment is to purchase it that way in the beginning. Do your research and find a property where the rental yield is high enough to cover all of the expenses.
You may only make a small amount per month in positive cash flow to begin with, but at least you won’t be in a negative cash flow situation.
You can then use the below 4 techniques to increase that cash flow even further and create financial freedom for yourself through the passive income the cash flow I’ll give you.
Increase The Income To Create Positive Gearing
If you can increase your income enough then you can create a position where you income will be greater than your expenses.
There are many ways to increase the income of your property
– Do renovations
– Build an extension
– Create dual occupancy
– Rent out the granny flat
– Make the property more desirable to the market
– Get a great real estate agent who can rent it for more
– Lease options
– Decrease the length of time your property is vacant for
Decrease The Expenses To Create Positive Cash Flow
As you decrease the expenses on your property you will require less income in order for the property to produce a positive cash flow.
Some of the ways to decrease your expenses included
– Securing a better interest rate for your mortgage
– Use an interest only loan instead of a principle and interest loan
– Get good tenants so that maintenance is minimized
– Shop around for the best (and most affordable) insurance policy
– Shop around for a cheaper rental manager
– Manage the rental property yourself to avoid fees
– Pay off your mortgage completely
– Subdivide and sell to lower the size of your mortgage
– Get the tenant to pay the utilities (water, electricity etc.)
Sell The Property Using Owner Finance
Another way to create a positive geared investment is to sell your piece of real estate by using owner finance.
Instead of selling your property for all of the money up front the buyer assumes a loan with you. As owner financed loans are generally 1-2% above the market rate, this puts you in a great position to create positive gearing.
For more information on owner finance deals read our post
How to create a positive cash flow using owner finance
Let It Occur Naturally Over Time
Over time two things are likely to occur quite naturally:
a) The rent will increase with time
Due to inflation and increased housing demand your rental income is likely to increase the longer you hold the property. With time this is likely to make your income greater than your expenses
b) Your mortgage payments will become less
If you are paying down your mortgage, or if you are putting money in your offset account with an interest only loan, then your required repayments on your mortgage are likely to become smaller.
If you pay off your mortgage completely then that major cost becomes $0/week and that is a huge expense you no longer have to think about.
As this expense lowers over time you will get closer and closer to producing a positive cash flow.
Making a property positively geared is possible, but it will often take a bit of creative thinking and some hard work in order to achieve a positive cash flow situation. Create enough positive cash flow and you can also create financial freedom for yourself and your family.