Many property investors use negative gearing to get a nice tax refund but should remember they don’t get all their expenses back. With rental income yields below home loan interest rates (although yields have been increasing with the latest reductions in interest rates), investors need to ensure they have the spare cash to cover not only the interest cost differential but also such expenses as council rates, land tax, water rates, maintenance costs and management fees.
A well planned annual budget on the property investment is the best way to ensure that you don’t fall short when an expense presents itself.
Include in your annual budget a projected budget of 2 – 5 years that will have the possibility of having to re-paint, new carpet, replacing air conditioning units or dishwashers.
One more thing – keep a month up your sleeve (or in your account) for vacant periods or where the tenant may fall behind in their rent.
)
