What Is Negative Gearing?
Negative Gearing is where you make a loss on your Investment Property because the rental income is less than the Interest you pay on your Loan.
The Government allows you to reduce your Tax by deducting the loss from your Gross Income.
Like everything, there are “Pros and Cons” with negative gearing depending on your individual financial situation and your particular Property Investment Strategy for example:
- Negative Gearing Pro: Significant Tax breaks can be achieved for Property Investors with negatively geared Properties, by offsetting any losses with the potential Capital Gains made, when selling the Property.
- Negative Gearing Con: If interest rates rise then there would be a greater risk of higher debt.
Negatively Geared Properties are usually a strategy for the longer term investor and will also require the necessary budgeting to cover the extra expenses.
Make sure that you consult a Financial Advisor about whether Negative Gearing is a Strategy that you should use in your Property Investing.
There has been a lot of discussion about the Government possibly changing or even abolishing Negative Gearing.
But doing so, will have severe consequences for the Property Investment Market and the Economy in general.
In the 1980’s the Labor Government tried to unsuccessfully get rid of it and the reaction of Property Investors was very strong.
There are lots of good books for learning how Property Investment works which can help you to learn and to start you on your journey to property investment success!