How do I utilise leverage and negative gearing?
Leverage is simply using somebody else’s money (borrowed money like a mortgage) to gain high returns in relation to your investment and to reduce your own liability for a loss. In other words you leveraged a small loan to get yourself into a better financial position. As long as the return on investment (ROI) and tax breaks are higher than the cost of borrowing the mortgage, you will make more money than if you did not borrow. This is where negative gearing comes in. The government has allowed any losses incurred when renting out a property (i.e. the expenses of running the property are greater than the rental income) to be tax deductible. If performed right you can end up benefiting from the tax benefits of making a loss than making an income. There are obviously a lot more things to consider but this should help you start your first investment property in the right frame of mind. Just remember knowledge is king; do your research!
