How negative gearing can be a positive for property.

Gearing is a term used when you borrow money to invest in an asset such as an investment property. Negative, neutral and positive gearing describe whether you’re making a profit or loss, or if you are breaking even after you borrow money for its purchase.
 

Negative Gearing

Neutral Gearing

Positive Gearing

When you borrow to invest in an asset…

…and the income you earn from that asset (e.g. rent) is less than your expenses.

As you’re making a loss you can deduct your expenses from your taxable income.

…and the income you earn from that asset (e.g. rent) is equal to your expenses.

As you’re breaking even you can’t deduct expenses from your taxable income.

…and the income you earn from that asset (e.g. rent) is more than your expenses.

This means you’re earning a net income from your property that will be liable for tax at your marginal rate. You can also choose to use that income to reduce the size of your loan.


Negative gearing is what happens when you borrow money to invest, and the income you make from that investment (e.g. rent from an investment property), is less than your expenses. Expenses can include maintenance, council rates, interest rates, insurances and property management costs. Negative gearing can make sense as a financial strategy when your property’s capital growth is likely to be greater than the loss you’ll make from any income/rental shortfall.

When can negative gearing be a sound investment strategy?

Negative gearing can be a good option when:

  • You have enough income available to afford the property and make the repayments needed
  • You’re confident that you can hold the property long enough for it to increase in value and achieve more capital gains than you’ll spend on the property
  • You’re looking to reduce your tax liability.

The primary goal of negatively gearing a property is to see the value of the property rise to a point where a healthy profit (over and above all expenses) can be made when you sell.

When can negative gearing go wrong?

Negative gearing can become a problem when:

  • Your cash flow isn’t enough to cover your expenses
  • You have to sell your property, potentially giving up significant future growth in value as a result
  • The market value of your property falls or grows more slowly than expected. In this case, you’re achieving limited capital gain and you’re covering out-of-pocket expenses associated with the property from a different income source. So, you’re spending money, but not getting any net financial gain from the property over the long term.

What's right for me?

Negative gearing can come with risks and is not right for everyone. Seeking financial advice is always a good idea before deciding on a gearing strategy that will work for you.

If you're ready to invest but not sure how much you can borrow, give our Borrowing Power Calculator a go and find out if you're financially fit to begin investing in property.

For more information on how you can borrow to invest in property with Beyond Bank, contact one of our Lending Specialists on 13 25 85 or by clicking the button below.

 

Also in Investing In Property

What is the difference between a home loan and an investment property loan?

  • Featured
  • Investing In Property
If you’re looking at property as a way to invest, you’ll need to understand how investment property loans work and how they’re different to a mortgage on a home that you live in.
Read article

How much is my property worth?

  • Featured
  • Investing In Property
  • Buying A Next Home
Interest rates are rising and that means property prices aren’t going up as quickly as they have been in the last few years. In some areas, prices are even going down.
Read article

The value of conveyancing when buying a home.

  • Featured
  • Buying A First Home
  • Buying A Next Home
  • Investing In Property
If you’ve been house hunting for some time, you’ve probably heard of conveyancing. But it’s not until you’ve found a place to call home and have had an offer accepted, that you’ll learn how essential it is in becoming a homeowner.
Read article

Terms, conditions, fees, charges and normal lending criteria apply. Full details are available at the time of application or by contacting us.

This information has been provided without taking into account any of your objectives, financial situation or needs. You should consider whether it is suitable for your circumstances before acquiring this product. 

All loans are provided by Beyond Bank Australia Ltd ABN 15 087 651 143 AFSL/Australian Credit Licence 237856. © 2023.

Back to top

Share this page