There are a number of terms thrown around in the world of investment real estate and some can be a little intimidating and hard to grasp. Today we look at four of the tricky terms and explain their meanings and how they could apply when it comes to purchasing your next investment property.

Debt recycling

For those interested in finding new tax breaks, debt recycling could be a term to look into.  Essentially, debt recycling is when you work with your lender to take your home loan (which generally isn’t deductible) and convert the debt into a tax-deductible investment loan.

For those looking to lower their taxable income it can be a useful, and dare we say, exciting exercise.  For those who have an existing mortgage but are interested in investing in another property or shares for example, it could be worth having a chat to your broker or bank.

Negatively geared

Negative gearing is where the incomings are less than your outgoings after all tax deductions have been claimed for your property. For example, if you receive a rental income on your investment property of $800 a month, however your mortgage repayments are $1,200 a month.  This means you have a shortfall of $400, which you may be able to claim as a loss when doing your tax return.  Many people on high incomes use negative gearing as a way to lower their taxable income.

Positively geared

The opposite of negative gearing, positive gearing occurs when the investment income exceeds the expenses on your property. For example, the rent you receive may be $1,200 a month, but the monthly repayments are only $900.  This can result in additional tax needing to be paid on the income you make from the property.

It is a good idea to run through these scenarios with your financial advisor before buying your investment property to see where you should sit in the scale of purchase price to debt ratio.

Annual Percentage Rate

The annual percentage rate (APR) refers to the effective interest rates charged annually and determines the total cost of credit for the consumer as a percentage of the total loan amount.  It takes into account one off expenses such as opening fees or regular account servicing charges.

It was developed to make loan comparisons easier for the average consumer. In Australia, financial institutions are required to advertise the APR to let consumers know the true interest rates they will be paying for the entire year.

We suggest you speak with your financial advisor to find out how these terms relate to your circumstances and what is right for you.

Call Hannah today to discuss the fantastic investment opportunities in Brisbane City today on 07 3254 0888.

The information provided on this blog is provided for general information only and it is not intended to be legal or financial advice nor is it a substitute for legal or financial advice.  The use of the information is the sole responsibility of the reader who must assess its suitability for their purpose. It is recommended that advice from a financial advisor be obtained before acting on the information provided. HS Brisbane Property endeavours to ensure that the information is accurate and up-to-date and does not assume responsibility for any errors or omissions in the published material.