Beginner Guide – What is Negative Gearing?

What is Negative Gearing?

Negative Gearing is a uniquely Australian policy that effects property investors. It occures when the cost of owning a property (loan repayments) are higher than the income it earns from rent. In other words, the property investment runs at a loss.

For example, Monthly repayments may be 4000 dollars. An investor may collect only 3000 dollars worth of rent for the month. The property investment has lost a thousand dollars a month.

In Australia, Investors can claim that loss as a tax deducation, reducing their taxable income. This makes the short term losses more manageable while hoping the property”s value rises over time. The strategy relies on long term capital growth to outweigh the short term cash losses. Whilst popular, negative gearing is not without risk. If property values fall or interest rates rise, investors may face larger losses.