To fully comprehend the meaning of a positively geared investment property, the following questions must be answered:
- What Is a Positively Geared Property?
- Positively Geared Property vs. Positive Cash Flow Property: What’s the Difference?
- And most importantly: How Can I Find a Positively Geared Property?
What Is a Positively Geared Property?
A rental property that is considered a positively geared property is an investment property that brings in more rental income than the cost of owning it. Basically what this means is that at the end of every month, once all your rental property expenses are paid, you’ll have cash in your pocket!
Let’s take a look at a tangible example. A single family home costing around $300,000 brings a real estate investor $1,500 in rental income per month. Its monthly expenses amount to $1,200. That leaves $300 for the real estate investor’s wallet. That is how making money in real estate through a positively geared investment property works.
Related: The Best Real Estate Investing Tips for Cutting Down on Your Expenses
Positively Geared Property vs. Positive Cash Flow Property: What’s the Difference?
A positively geared investment property is sometimes referred to as a positive cash flow property. While sometimes in the real estate investing world the two terms are used interchangeably, there is a notable difference:
For a positively geared property, the rental income is higher than the rental property expenses before taxes are considered.
For a positive cash flow property, the rental income exceeds the expenses after tax deductions and refunds are considered.
Which type of property is right for you: a positively geared investment property or a positive cash flow property? The answer differs from real estate investor to real estate investor, depending on the investment strategy. Many real estate investors prefer a positively geared property simply because making money in real estate before taxes is more desirable than losing money on a positive cash flow property and having to claim it back.
How Can I Find a Positively Geared Property?
Now that you know the basics, you are probably eager to know how you can find a positively geared property. This type of investment property does exist and can be easily found. If you follow these steps on how to find a property, you can start making money in real estate:
Get Good Financing
Before a real estate investor tries to find homes for sale that fit the description of a positively geared property, he/she has to consider financing. High interest rates and monthly mortgage payments make it almost impossible to find a positively geared property.
The very first thing, then, is for a real estate investor to take steps to improve his/her credit score before approaching a mortgage lender. Real estate investors with a better credit score get better financing terms. Period. For steps on how to improve your credit score, read the guide “How Can You Improve Your Credit Score for Financing Investment Properties?”
Once you’ve improved your credit score, shop around for different interest rates and monthly mortgage payments. Not every mortgage lender offers identical mortgages, and with a little research you might find the cheapest plan.
The final step for getting good financing when attempting to find a positively geared property is to pay a larger down payment and/or mortgage points. This isn’t always possible as it requires a real estate investor to have a hefty sum of cash ready. But if the cash is available, a down payment higher than the typical 20-30% can mean lower interest rates and monthly mortgage payments. Consider mortgage points as well, which are just a way for a real estate investor to pay for interest rates for an investment property upfront, rather than down the line.
Achieving better financing means lowers the expenses on an investment property. That means a better chance of finding a property that is positively geared and making money in real estate.
Find a Property in a Good Location
In general, any real estate investment needs to be in a good location, and there are certain sought after characteristics of this location. To read more about how to find an overall great location for any real estate investment, read the post “Location Location Location: What Makes for The Best Place to Invest in Real Estate?” Once a real estate investor knows the basics of how to find homes for sale in good locations, it’s much easier to find a positively geared property.
The main aspect of location to focus on when it comes to a positively geared investment property is high rental income. Try to find homes for sale in a neighborhood with high rental income or rental income that is trending towards an increase. You can use Mashvisor to take a look at different neighborhoods within cities across the nation and compare the rental incomes from investment properties.
Take the 1st step to find a positively geared property. Click here to find a neighborhood with homes for sale with high rental income.
Once you’ve narrowed down a few neighborhoods with high rental income, it’s time to find a property in a good condition.
Find a Property in a Good Condition
Now that you know where you want to buy a rental property, which one will be your positively geared investment property? A positively geared property is one that isn’t going to cost a lot to hold and maintain. This means to find homes for sale that need little to no major repairs or renovation. Real estate investors trying to find a property that is positively geared shouldn’t go after a fixer-upper, for example.
Related: The Investment Property You Should Never Every Buy
Get a home inspection done, and set up a scheduled plan for any repairs that do need to be done. Set aside a budget for the repairs from the get-go to make sure you have a positively geared property on your hands.
Take the 2nd step to find a positively geared property. Click here to find homes for sale in your desired location and start making money in real estate.
Find a Property at the Right Price
A mistake beginner investors make when learning how to find a positively geared property is overpaying. Once they overpay, they try to make up for this by raising the rental price enough to attempt to turn the rental property into a positively geared property. However, this won’t go over too well with tenants (and you’ll end up with expensive monthly mortgage payments!). Tenants will find homes for sale with similar amenities and look for competitive rental prices.
The best way to find a property with the right price is comparative market analysis. Find homes for sale that are similar to the rental property and see what their prices are to find the value of your rental property. The right price will allow you to set competitive rental prices and attract tenants, a key part of a successful positively geared property.
Take the 3rd step to find a positively geared property. Click here to find homes for sale that are similar to your chosen rental property.
Related: Beginner’s Guide to Comparative Market Analysis
If you want to be making money in real estate, start looking for a positively geared property today. This kind of rental property is not impossible to find. Familiarize yourself with the characteristics and follow the steps on how to find a positively geared property in this guide. In no time at all, you could have a rental property that pays for itself!