Negative Gearing: Tips and Tricks to Understand the Basics

Negative gearing is one of the most talked-about concepts in property investing — and one of the most misunderstood.

You’ll often hear people say it’s a “tax strategy” or a way to “reduce tax”, but that oversimplifies what’s really going on. Negative gearing affects cash flow, borrowing power, and long-term outcomes, not just tax.

Here are some practical tips and tricks to help you understand the basics before deciding whether negative gearing is right for you.

Tip 1: Start With the Simple Definition

Negative gearing simply means your investment property costs more to hold than it earns in rent.

If rental income doesn’t fully cover expenses such as loan interest, property management fees, insurance, rates, and maintenance, the property is negatively geared.

That shortfall is the “loss” people refer to.

Tip 2: Remember — Making a Loss Isn’t the Goal

This is one of the most important things to understand.

Negative gearing itself isn’t the objective. Most investors are aiming for long-term capital growth. The loss is simply the short-term cash flow position while holding the property.

If a property never grows or becomes unaffordable, the tax benefit alone won’t save it.

Tip 3: Understand How the Tax Benefit Actually Works

The reason negative gearing is popular is because the loss may be tax-deductible.

That loss can potentially be offset against other income, such as your salary, which may reduce the amount of tax you pay.

However, a tax deduction usually only returns a portion of the loss — not the full amount. You still need to fund the shortfall.

Tip 4: Cash Flow Matters More Than Tax

Even with tax benefits, you’ll still be contributing money each month to hold a negatively geared property.

A key trick is making sure that contribution is comfortable. If the holding cost feels stressful, the strategy may not suit your situation.

Negative gearing should feel manageable, not like a financial strain.

Tip 5: Loan Structure Can Change the Outcome

How your investment loan is structured can significantly affect negative gearing.

Interest rates, whether the loan is interest-only or principal and interest, and how offset accounts are used all impact cash flow.