We cover what you need to know..
What exactly is Negative Gearing?
Negative Gearing is when the interest you are paying on the property is more than the income, therefore it creates a taxable loss.
The most popular benefit of Negative Gearing is the Australian Tax Office allows investors to offset an income loss acquired on a real estate investment against another form of income. How? The interest on the loan is fully deductable, this will deduct the interest spend on the property from your total earnings over the financial year which will reduce your tax debt and taxable income.
So what are other advantages of Negative Gearing?
- Capital Growth: capital returns from the property will eventually outweigh the borrowing levels and costs
- Easier to secure a tenant due to rent being affordable
- Less volatile investment
Managing the risks with Negative Gearing include:
- Make sure you purchase a property that will increase in value
- Have enough to cover loan repayments if your property is vacant or tenant does not pay the rent over a few months
- Have some mortgage insurance in case the worst happens!