Investment Tools » Negative Gearing

What is negative gearing? 

Negative gearing is a term that is talked about by many people, especially those interested in property investment, but there is a great deal of confusion around what “negative gearing” actually means and the implications of investing in a property using negative gearing.

Simply put, it means using other people’s money to buy property, and if the total expenses including interest on this borrowed money exceed the rent, creating a negative cash flow, then the property is said to be “negatively geared”.

The Australian Tax Office (ATO) allows property investors to offset this loss on their investment property against their other income such as salary/wages, business income, bank deposits or even other property income.  The “loss” usually results in at least a reduction in tax payable or a tax refund in their income tax assessment.  

Negative gearing by property investors reduced personal income tax revenue in Australia by $600 million in the 2001-02 tax year, $3.9 billion in 2004-05 and $13.2 billion in 2010-11.* 

*(source Wikipedia http://en.wikipedia.org/wiki/Negative_gearing_(Australia))  (4 March 2014)

Is negative gearing into property really a good investment strategy?

Generally speaking, negatively geared properties are those that are found in higher value, higher capital gain and lower rental yield return areas.

Negative gearing can help property investors reduce their taxable income in the short to medium term, however reducing taxable income should not be the main reason for investing in any property. The purpose of owning a negatively geared investment property and making a “loss” is not simply to get a healthy tax refund.  

How we can help

Your property investment strategy should be focused on the long-term to build a valuable asset base from which you can receive a reasonable rental income and realise possible capital gains for retirement.

Whatever property investment strategy you are considering, Landsdale Property Group can help you:
1. Consider your current financial situation and goals.
2. Gain knowledge around property investment options. 
3. Better understand the implications of the property investment process.
4. Support and guide you through finding and purchasing the right property to suit your financial situation and goals.  
5. Realise the benefits of your property investment purchase.