How does a negative geared IP turn into a positive geared IP?

Hi guys and gals, I have been reading a few threads lately and notice people say -

"my IP is currently negatively geared but will turn into a positive geared IP in the coming years"

I am just wondering how this happens? Please excuse the newb question but I am trying to expand my knowledge! Thanks

 

Usually with time.

Hopefully rent will go up. If paying P&I interest will reduce. Recently many have been assisted by reductions in interest rates.

Basically it means that income from the property goes up. And expenses reduce.
Marg

 

This!

 

Either income increase or expenses decrease or both

 

Another way to look at it, is that a Negatively geared property costs you money each and every month.
A positively geared property pays for itself (all outgoings) and leaves funds over/profit (that the ATO will want a portion of).

 

Keep in mind a property can be both negatively geared and cash flow positive.

 

Is this from claiming depreciation on your tax?

Thanks for all the replys guys! I appreciate it.

 

Yes non cash deductions such as depreciation and borrowing costs

 

Depreciation plays a big role in the first 5ish years of a new investment property because it can be pretty huge "losses"- talking $15-20k on even crappy new shoebox builds. Its less handy over the longer term as deductions trim down to a more modest several grand a year.

So yeah its possible to still make a profit while appearing to bleeding money with your IPs when it comes to tax time. Interesting world we live in.

 

Wow 15-20k is a lot.
Is that only for brand new houses? Or for properties under 3 years old?
What would you look for to maximise this?

 

Its for a newly built apartment. Depreciation drops off significantly after a few years. I posted a depreciation report in the Media section if youre interested in seeing the dropoff over time.

Dunno how this is maximised though, and I'd be wary of buying simply for large depreciations- the fundamentals have to be sound.

 

Brand new would give you the best depreciation.

With the recent changes the 3 year old house would still have deprecation but you can no longer claim the equipment unless you put it in yourself after purchase/settlement but would likely be a capital cost so worst than the rules before.