How do I gear my property portfolio?

By Rich Harvey, CEO, propertybuyer.com.au

To really set yourself up for a comfortable retirement through property, you need to establish a set of several investment homes to sustain you once you decide to leave the workforce. You can choose to buy in one area, or diversify and establish a wide variety of houses to bring you income. But once you buy property, how do you set up your loan payments and rent yields?

Positive gearing: Do I go for it?

Many people prefer to go with cashflow positive property, making immediate gains through rental yield and focusing on this rather than the overall value of the home. However, you pay more tax on these profits and your loan repayments may be stretched out over a longer period. It's good if you want short-term gains and often suits people just starting out in investment or want to supplement their income. If you fall within a higher income bracket, you might want to head in another direction.

When do I shift into negative gearing?

When you negatively gear property, you can still have surplus funds through tax deductions while you wait for the home to increase in value. Once you pay off a loan or sell a property, you'll find your profits are looking good. These deductions, which can be made on anything from legal fees to basic home maintenance, are very beneficial for those earning more as they can soften the blow of a higher tax bracket.

Negatively gearing several properties at once can work very well if you're looking to sell the homes in the long term, especially coupled with interest-only loans. Patience is a virtue for a reason - stay in it for the long run for the best result on a home. However, this doesn't mean you should gear every investment you make negatively - the expertise of an agent will be able to guide you on which rent yields work for this strategy.

The spice of life

The beauty of diversifying your property portfolio is you don't have to restrict yourself to one style of investment. Mixing positive cashflow properties with negatively geared properties can bring you stellar returns, but you have to make sure your investments are chosen in the right place at the right time. Knowing when and where this is can be difficult, but by engaging a buyers agent you'll have everything you need to identify what kind of growth is occurring in certain areas. By keeping their ear to the market at all times, agents know exactly where to invest and which properties will make the best returns for your situation.