Managing the Risks of Negative Gearing
Negative gearing can be an effective investment strategy when it’s well planned — but like any strategy, it comes with risks.
The key difference between negative gearing that works and negative gearing that causes stress is risk management. Understanding the risks is important, but knowing how to manage them is what allows investors to move forward with confidence.
Here are the key ways investors can manage the risks associated with negative gearing.
Focus on Cash Flow First
The most important risk to manage with negative gearing is cash flow.
Because a negatively geared property costs money to hold, you need to be confident that your income can comfortably cover the shortfall — even if circumstances change.
A good rule of thumb is that the holding cost should feel manageable, not tight. If repayments rely on everything going perfectly, the risk is likely too high.
Build and Maintain a Financial Buffer
Buffers are essential when managing negative gearing risk.
Unexpected repairs, interest rate rises, or short-term vacancies can increase costs quickly. A financial buffer helps absorb these shocks without putting pressure on your day-to-day finances.
Many investors aim to hold several months of repayments and expenses as a safety net.
Stress-Test Your Loan
Interest rates change over time, and negative gearing is particularly sensitive to rate increases.
Before committing, it’s important to consider how your cash flow would look if rates were higher than they are today.
If the strategy still works under less favourable conditions, the risk is far more manageable.
Choose the Right Loan Structure
Loan structure plays a major role in risk management.
Interest rates, repayment type, and access to features such as offset accounts all affect cash flow and flexibility.
A well-structured loan can reduce interest costs, improve cash flow, and provide options if circumstances change.
Avoid Relying on Tax Benefits Alone
One of the biggest mistakes investors make is relying too heavily on tax deductions.
Tax benefits help reduce the after-tax cost of holding a property, but they don’t remove the loss entirely. If the investment only works because of the tax benefit, the risk may be too high.
The property should make sense even without relying on best-case tax outcomes.
Plan for Changes in Personal Circumstances
Income, expenses, and priorities can change over time.
When managing negative gearing risk, it’s important to consider how the investment would hold up if your circumstances changed — for example, a reduction in income or increased family expenses.
Building flexibility into your finances makes the strategy more resilient.
Review the Investment Regularly
Negative gearing is not a “set and forget” strategy.
Regular reviews help ensure the property, loan structure, and cash flow still align with your goals. As rent increases or loans change, the strategy may evolve.
Ongoing reviews help identify issues early rather than after they become problems.
Get the Right Advice Early
Negative gearing sits at the intersection of tax and finance.
Tax professionals such as
The Accountants
can help explain how negative gearing affects your tax position and whether deductions apply as expected.
At the same time, the finance structure must support affordability and flexibility.
How Chase Helps Investors Manage Risk
While negative gearing is often discussed as a tax concept, the loan structure behind an investment has a significant impact on risk.
Chase Douglas has extensive experience in mortgage lending and helps investors assess affordability, structure loans effectively, and plan for changes over time.
Chase focuses on reducing risk through smart loan design, realistic borrowing assessments, and clear communication — so investors understand their position before committing.
Can Negative Gearing Be Managed Safely?
Negative gearing can be managed effectively when risks are understood and planned for.
It works best for investors who prioritise cash flow, maintain buffers, and review their position regularly.
👉 Book a conversation with Chase Douglas to understand how to structure investment lending in a way that manages risk and supports your long-term goals.
Smart investing isn’t about avoiding risk — it’s about managing it well.
