Real Property Investment
Why do people use real property investment
Investment in property is most important investment instrument in Australia, as you know the richest 200 people??s wealth is based on the real property. Although property must be viewed as an illiquid investment because the transfer costs of properties are high and the selling period averages several months, according to steady profit return and low risk, many people buy in property to against currency inflation, and to compensate increasing life expense contrasted to decreasing social security after retirement.
How does it work
Gearing basically means borrowing to invest. An investment property thats negatively geared is purchased with a loan that has an annual net rental income amount that is less than the annual interest paid on the loan, plus the deductible expenses associated with maintaining the property. You get tax benefits by being negatively geared as you are able to deduct the costs of owning an investment property from your overall income. The biggest part of this deduction is the interest portion of your mortgage, but you can also claim such expenses as property management fees, loan costs and repairs.
Because negative gearing deductions offset your income, they are most beneficial to high-income earners. What this
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