When the interest you are paying on your investment property is greater than the money you are making from that property, it’s called negative gearing.

Negative Gearing

From a property investment perspective, negative gearing has its advantages.

Negative gearing is popular with Australian property investors because it allows you to ‘gear’ your financial losses through property against your taxable income. Put simply, your property ‘losses’ are tax deductable.

Negative gearing is especially popular with high income earners who are looking for legitimate tax deductions. The more money they borrow, the more interest they pay, and the greater their tax deduction.

While negative gearing is a popular and attractive option, it’s important to remember that mortgage repayments still have to be made on a regular basis. The tax benefits of negative gearing are available either at the end of the financial year, or on a monthly basis via a tax variation pre-approval from the Australian Taxation Office.

Positive Gearing

Positive gearing is when your property is making more money that it costs. For example, if your rental income is greater than what it costs to finance the property, it is said to be ‘positively geared’.

Positive gearing is achievable in a low interest rate environment (like we are in now). Some investors find that with a careful investment strategy they can make money on a property from day one.

When financed correctly, a positively geared property doesn’t need to cost you anything upfront – especially when adjustments for tax and depreciation are taken into account.