When is a Negative Positive?

Most business operators chase annual profits. They want to ensure business receipts always exceed expenses. Applied to an investment property, this means rent receipts each year should be higher than the total of interest, all rates and taxes, agents? fees and commissions, maintenance and other expenses.

But an investment is profitable if the total rental income, plus the capital gain achieved on sale of the property, is more than the sum of all costs. Your calculations must include all costs of buying, holding, letting and selling, plus all taxes paid on the investment income and capital gain.

Income tax savings on income from other sources also contribute to the profit equation. If you earn a salary and negatively gearing an investment property results in an income tax saving of $2,000 yearly on your salary income, you should add that to the income from your investment property. Sometimes this tax saving can transform a losing investment into a marginally profitable investment.

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