Understanding Negative Gearing: What It Is and Why It Matters
Negative gearing is one of those terms you hear a lot — especially when people talk about property investing — but it’s often misunderstood.
Some see it as a smart strategy. Others see it as confusing or risky. The truth sits somewhere in the middle, and it all comes down to understanding what negative gearing actually is and when it makes sense.
Let’s break it down in plain English.
What Is Negative Gearing?
Negative gearing occurs when the costs of owning an investment property are higher than the income it generates.
In simple terms, your rental income doesn’t fully cover expenses such as loan interest, property management fees, maintenance, insurance, and other costs.
This results in a net loss — which is where the term “negative” comes from.
Why Would Anyone Do That?
At first glance, making a loss doesn’t sound appealing.
The key reason investors consider negative gearing is because those losses may be tax-deductible. If structured correctly, the loss can be offset against other income (such as your salary), potentially reducing your overall tax payable.
The strategy relies on the idea that while you may take a short-term loss, the property could grow in value over the long term.
Negative Gearing Is a Tax Outcome — Not a Goal
One of the most important things to understand is that negative gearing itself is not the goal.
It’s a tax outcome that may occur depending on how an investment is structured. The real goal is usually long-term wealth creation, capital growth, or building an asset base.
Focusing only on the tax benefit without considering the broader financial picture can lead to poor decisions.
It’s Not Just About Tax
While tax deductions are often the headline, negative gearing also affects cash flow.
You need to be comfortable covering the shortfall between rental income and expenses. That means having sufficient income and financial buffer to manage the ongoing cost.
If cash flow is tight, negative gearing can become stressful rather than strategic.
Negative Gearing Doesn’t Suit Everyone
Negative gearing works differently depending on your income, tax position, and long-term plans.
For some people, the tax benefit may be minimal. For others, changes in interest rates or expenses can quickly increase the cost of holding the property.
That’s why it’s important to understand how negative gearing fits into your overall financial strategy — not just whether it’s available.
Finance Structure Plays a Big Role
How an investment loan is structured can significantly influence whether a property is negatively geared and how manageable it is.
Interest rates, loan type, offsets, and repayment structure all affect cash flow and tax outcomes.
This is where lending advice and tax advice need to work together.
Understanding the Bigger Picture Matters
Negative gearing is most effective when it’s part of a broader plan — not a standalone decision.
Factors like capital growth potential, exit strategy, risk tolerance, and long-term affordability all matter just as much as the tax outcome.
Educational resources and guidance from professionals such as
The Accountants
can help put the tax implications into proper context.
Why Understanding Negative Gearing Before You Invest Is Crucial
Many people jump into property investment without fully understanding how negative gearing works or what it will cost them month to month.
Taking the time to understand the concept before you invest helps avoid surprises and ensures any strategy aligns with your financial position and goals.
How Chase Helps You Understand the Finance Side
While negative gearing is a tax concept, the finance structure behind an investment can significantly affect how it plays out.
Chase Douglas has extensive experience in mortgage lending and helps clients understand how investment loan structures, interest rates, and cash flow interact with strategies like negative gearing.
Chase works alongside your broader advisory team to ensure the lending side supports — rather than undermines — your investment strategy.
Is Negative Gearing Right for You?
Negative gearing isn’t good or bad on its own — it’s simply a tool that works in some situations and not others.
The key is understanding how it affects your cash flow, tax position, and long-term plans before making decisions.
👉 Book a conversation with Chase Douglas to understand how your finance structure could support an investment strategy like negative gearing — and whether it makes sense for you.
Understanding the fundamentals is always the smartest first step.
