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How to make your investment property cash flow positive

You can negatively gear your investment property while still getting positive cash flow. We show you how.

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Negative gearing is one of the major draws of property investment. This tax structure allows you to deduct losses on an investment property from your income, minimising your tax liability. Investors use this strategy to offset the cost of holding a property in the hopes of eventual capital gains.

But it's possible to see positive cash flow from a property while still claiming negative gearing benefits by claiming a depreciation allowance.

How to negatively gear a cash flow positive property

The secret to seeing positive cash flow from a negatively geared property is a depreciation allowance. Depreciation is the reduction in value over time of parts of your property.

Over the years, natural wear and tear mean that parts of your property lose value. This can be both the building itself and some of the features inside it, such as appliances, carpets, drapery and blinds.

A quantity surveyor can help you set up a depreciation schedule for your property. Here is an example of how a depreciation schedule can help you see positive cash flow while remaining negatively geared.

Let's imagine you bought a new investment property with a $400,000 interest-only home loan at a rate of 4.50% per annum. You charge your tenants $400 a week for rent. Using a depreciation schedule, you claim a depreciation allowance of $2,000. This covers the depreciation of appliances, carpet and floorboards.

As you can see in the example below, your property would be negatively geared while you would end the tax year $800 ahead on a cash flow basis.

  • Annual rental income: $20,800 ($400 x 52)
  • Home loan repayments: $18,000
  • Strata costs and other fees: $2,000
  • Total cashflow position = +$800

Depreciation allowance: $2000

= -$1,200 negatively geared

How can I compare investment property home loans?

In order to maximise your cash flow, you'll need to find the right investment property home loan. Interest on investment property home loans is tax deductible, so the interest rate you pay will have a significant impact both on your tax situation and your cash flow position. Because of this, many investors opt for interest-only home loans.

When you're comparing home loans for an investment property, you should take the following factors into account:

  • Interest rate. With a lower interest rate, you can benefit from increased income from your rental property, so you should carefully consider the interest rate of any home loan you’re looking at. When doing so, look at the comparison rate, as this will take into account the fees you’ll be paying and reflects the true cost of your loan.
  • Fees. Carefully review the fees of the home loan. In particular, look at the upfront costs: fees such as application, valuation and settlement charges. Also, see if the loan has any ongoing fees or fees for offset accounts or redraw facilities if you use these features.
  • Features. Home loans today come with a range of features which can help those looking to invest. These include 100% offset accounts, which are transaction accounts designed to help minimise the interest you pay when you leave funds in the account; interest-only options for as long as 10 years, which remove the principal component of your loan repayments to reduce payments and increase tax savings; and the ability to split your rate between fixed and variable portions, so you can have more control over the costs of your repayments.

Compare investment home loans

Data indicated here is updated regularly
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Loan purpose
Offset account
Loan type
Repayment type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
2.54%
2.56%
$0
$0 p.a.
80%
Up to $4,000 refinance cashback. A competitive variable rate loan from St.George. Refinancers borrowing $250,000 or more can get $4,000 cashback (Other terms, conditions and exclusions apply).
UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupiers, Variable P&I Rate
2.49%
2.49%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)
2.29%
2.72%
$0
$8 monthly ($96 p.a.)
95%
Up to $3,000 refinance cashback.
A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.
homeloans.com.au Low Rate Home Loan with Offset - LVR Under 60% (Owner Occupier, P&I)
2.29%
2.31%
$0
$0 p.a.
60%
A competitive rate with no application or ongoing fee. This loan is not available for construction.
Athena Celebrate Home Loan - 60% LVR  Owner Occupier, P&I
2.34%
2.34%
$0
$0 p.a.
60%
Owner occupiers with 40% deposits or equity can get this competitive variable rate loan. No upfront or ongoing fees.
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If you’re investing in a property, chances are you’ve spent a lot of time carefully studying the market to find a property worthy of your time and money. This is why it’s crucial to ensure your property is financed by a home loan which is low cost, while providing features you can benefit from. Start a comparison of home loans today and you may reap savings.

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2 Responses

  1. Default Gravatar
    VinceNovember 17, 2014

    I have approx 850k of equity across 2 properties and want to purchase another investment property. Because I have a low income, 50k banks won’t lend me money.
    How can I get all this equity working for me.

    • Avatarfinder Customer Care
      ShirleyNovember 17, 2014Staff

      Hi Vince,

      Thanks for your question.

      Unfortunately we can only provide general advice regarding investment. You may want to consider speaking to a mortgage broker to see if they can help you find a lender who will let you release your equity.

      All the best,
      Shirley

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