Why Real Estate Investing?

Tax advantages and negative gearing

The costs of holding an investment rental property are tax deductible. That is, you can get a tax deduction for:

• The interest on your property investment loan;
• Real estate management fees;
• Insurance on your investment property;
• Repairs and maintenance on your investment property; and
• Depreciation on your investment property.

For example, if you are on the top marginal tax rate (45%) and it costs you $10,000 to hold your rental property, your tax bill will be cut by $4,500. That means your weekly cost of holding the investment property could be as low as $52 per week. (The actual cost will depend on your individual circumstances.)

Negative gearing simply means that the cost of holding your investment property is more than the income you receive. That is, your investment property generates a loss each year. That's not all bad news because you can get a tax deduction on the loss, as explained above.

But if your property investments generate a loss, why do it?

The answer is leverage.

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