Negative gearing

An easy way to profit from residential property or a fashionable way to lose money?
 
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  • Updated:7 Jan 2006
 

01.Introduction

Negative-gearing
Negative gearing is being promoted as an easy way small investors can make money from the property market.

This report investigates whether these negative gearing claims are too good to be true and what negative gearing really involves.

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Please note: this information was current as of January 2006 but is still a useful guide to today's market.


What is negative gearing?

  • An investment is negatively geared when the costs you can claim from it on your tax return exceed the income it provides. In other words, it’s costing you money in that year, even with a tax break.
  • Although negative gearing is commonly associated with rental property, it can be used for other types of income-producing investment (for example, managed funds and shares).
  • Buying a negatively geared property is like buying a loss-making business. Make sure it’s the right strategy for you before going ahead — evaluate the investment’s likelihood of strong capital growth first, not just the tax breaks.
  • Negative gearing has substantial risks — your investment’s value may not grow sufficiently to cover your costs and give a good return.

What you'll get in this report

  • How it works: A costed example of how negative gearing works.
  • Common traps and our advice: Negative gearing is a risky strategy. Read our advice before you sign anything!
  • Property vs shares comparison: We compare investment returns with the growth of house prices over 10 years.
  • A case study of one couple’s negative experience with investment in the property market.
 
 

 

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