What is Negative Gearing?
When we borrow money to purchase an asset and we lose money while we hold it, it is called negative gearing.
Investment grade negatively geared property offers the opportunity of strong capital growth in exchange for lower rental yields. The risk is in the holding phase of the property while the return is forecast to be in the exit phase. Holding negatively geared property requires us to consider contingency funding more closely to reduce our potential risk.
Many styles of property are negatively geared. Most properties purchased with the release of equity or other high loan to Loan to Value Ratio (LVR) strategies are negatively geared.
Income losses created from holding negatively geared property are deductible for taxation purposes. This can be attractive for high-income earners seeking taxation concessions.
Cash flow is a separate consideration in the holding of investment property; this is the return to you without taxation benefits.
Some properties are cash flow positive; they return an income each week to the investor over and above the everyday expenses. They can end up being either positively or negatively geared depending on the depreciation and other applicable taxation benefits.
It is very important to consider your personal situation and the results you are seeking over time before you commit to a positively or negatively geared property.
For a complimentary consultation to review your current property investment portfolio or to discuss which option will yield the best results for you, get in touch with Julian or Tal.