The Benefits of Negative Gearing

Negative gearing is an interesting practice in the housing market that has its own set of pros and cons. The term might intimidate people who are trying to get into the housing industry but it is quite an easy concept to grasp. People need to understand what gearing is all about first.

A “geared” investment simply means that a person had to borrow money from traditional lenders to get it off the ground and running. This means that applied to a housing investment, a person had to take out a loan in order to purchase and acquire an income-generating property.

This is where negative gearing comes into the picture. This refers to the circumstance where the income that the property is generating is lower compared to the cost of owning it. In essence, the geared housing investment is losing money and is generating at a loss.

Losing money on an investment is sure to turn heads around but negative gearing on a property has some benefits to it when it comes to your taxes. The loss you incur on your property can reduce the tax payable on your salary. This can greatly help you manage your household budget more effectively with a little more cash on hand. And you are not alone in this as the ABC shares that a good 10% of taxpayers are filing for negatively geared properties.

Negative gearing also makes it easier for investors and people to accumulate property investments, which can grow in value over the course of time. Seen by some as a tax effective way of managing a high investment portfolio, it also helps people build up their assets for retirement purposes.

High capital growth is one of the benefits investors are hoping for when they take up a gamble on negatively geared property investment. This investment method can help people strengthen their financial capability in the long run.

There are also talks about changes in policy regarding negative gearing but as Dr. Andrew Wilson shares in, this might be a bad idea and cause significant imbalances to Australia’s housing markets. It is best to look at how the Federal Treasurer Scott Morrison views the industry. He mentioned that he is a believer in negative gearing which gives hard-working Australians the chance to build some wealth they would not otherwise get.

To learn more about negative gearing, check out more here.