What is negative gearing, and how can it benefit property investors?

Negative gearing is a common term associated with investment properties in Australia. It refers to a situation where the expenses incurred in owning and operating an investment property exceed the returns generated from it. So what is the concept of negative gearing and its implications?

Credit: Ninos Emmanuel

Key Points

• Negative gearing allows property owners to offset costs against taxable income.
• Pros: can reduces rental costs, attracts buyers with tax benefits, increases housing value.
• Cons: initial losses, limited ability to acquire more properties.

Negative gearing occurs when an investment property's expenses exceed its generated returns. Conversely, positive gearing occurs when the rental income covers all costs, including loan interest.

While investing in properties is to make profits, negative gearing does not necessarily discourage investors.

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