How Negative Gearing Works: 10 Practical Tips Every Investor Should Understand
Negative gearing is often explained in headlines or one-liners, but the reality is a little more nuanced.
To really understand how negative gearing works, it helps to break it down into practical ideas that reflect what actually happens once you own an investment property.
Here are ten simple tips to help you understand how negative gearing works in practice.
Tip 1: Negative Gearing Starts With an Investment Property
Negative gearing only applies to income-producing assets, most commonly investment properties.
Once a property is rented out, it generates rental income — but it also comes with ongoing costs.
Tip 2: It’s All About Income Versus Expenses
The core of negative gearing is comparing what the property earns to what it costs to hold.
Expenses typically include loan interest, property management fees, council rates, insurance, maintenance, and other running costs.
If expenses are higher than rent, the property is negatively geared.
Tip 3: The “Loss” Is a Cash Flow Reality
When expenses exceed income, a loss is created.
This loss isn’t theoretical — it represents real money you need to contribute to hold the property.
Understanding this cash flow impact is critical before committing to an investment.
Tip 4: Tax Deductions Don’t Eliminate the Loss
One of the biggest misunderstandings is believing tax deductions cancel out the loss.
In reality, tax deductions usually return only a portion of the loss, depending on your tax rate.
You still need to fund the remaining shortfall yourself.
Tip 5: Your Income Level Influences the Outcome
Negative gearing works differently depending on how much you earn.
Higher-income earners may see a greater tax benefit, while lower-income earners may find the benefit more limited.
This is why negative gearing is not a one-size-fits-all strategy.
Tip 6: Loan Structure Plays a Big Role
How your investment loan is set up can significantly affect how negative gearing works.
Interest rates, loan type (interest-only versus principal and interest), and offset usage all influence cash flow and the size of the loss.
Finance structure and tax outcomes are closely connected.
Tip 7: Negative Gearing Is Often Strongest Early On
Negative gearing is usually most noticeable in the early years of an investment.
Over time, rent may increase and loan balances may reduce, which can move the property closer to neutral or positive cash flow.
Understanding this timeline helps set realistic expectations.
Tip 8: Long-Term Growth Is the Real Objective
Most investors use negative gearing while aiming for capital growth over the long term.
The expectation is that future property value growth will outweigh the short-term holding costs.
Without long-term growth potential, negative gearing alone rarely makes sense.
Tip 9: Cash Flow Buffers Are Essential
Because negative gearing involves contributing money, having a financial buffer is important.
Unexpected expenses, interest rate changes, or rental vacancies can increase the cost of holding a property.
A buffer helps keep the strategy manageable rather than stressful.
Tip 10: Professional Advice Helps Connect the Dots
Negative gearing sits at the intersection of tax and finance.
Tax professionals such as
The Accountants
can explain how losses are treated from a tax perspective.
At the same time, the loan structure needs to support the strategy.
How Chase Helps With the Finance Side
While negative gearing is often discussed as a tax concept, the finance setup behind an investment can significantly influence how it works in practice.
Chase Douglas has extensive experience in mortgage lending and helps investors understand how loan structure, interest rates, and cash flow interact with strategies like negative gearing.
Chase ensures the finance side supports your investment goals — rather than working against them.
Is Negative Gearing Worth Exploring for You?
Negative gearing isn’t automatically good or bad — it’s simply a mechanism that works in some situations and not in others.
Understanding how it works is the first step toward deciding whether it fits your financial position and long-term plans.
👉 Book a conversation with Chase Douglas to understand how investment lending works and whether negative gearing could suit your goals.
Good investment decisions start with clear understanding.
