Negative Gearing & Property

Negative gearing describes the situation where you borrow to buy an investment (most commonly property or shares) and the interest and other costs you incur to maintain the investment exceed the annual income you receive from the investment. While negative gearing is commonly associated with rental properties, a negatively geared property is where the interest and expenses to maintain the property exceed the rental income.

Creating wealth through negatively gearing an investment property is a well established practice in the country with approximately 30% of residential properties owned by investors. If you were to believe some people it would all seem very simple. Buy the right property in the right location and then courtesy of the Government’s tax concessions have the tenant and the Tax Office partially fund your running costs while you sit back and profit from the appreciating value of the property.

But does using property to make money that simple?

There are some key principles that you need to understand when buying a negatively geared property, such as:

• When is the best time to buy?
• Buying the right type of property in the right location is the key to long term capital growth.
• A tax deduction is available because you are making a “loss” on your investment.
• Negative gearing is attractive because of its tax advantages however, its taxation benefits should not be the primary consideration behind the investment decision.

Even though the theory behind negative gearing might seem simple but there are plenty of principles that you need to take into consideration. The real benefits of negative gearing are only realized when you combined the correct tax and financial advice with the right property and loan product. Seeking an expert advice can assure you a long term capital growth.

With over 15 years of experience in taxation, our firm can assist you in the matter of achieving your wealth. Contact us or today to make a 1 hour consultation to learn more of negative gearing. You can also take advantage of downloading our free negative gearing guide right here.