Negative Gearing Explained: Your Questions Answered
Negative gearing is one of those property investment terms that gets mentioned a lot, but rarely explained clearly.
If you’re new to investing — or just want to understand how negative gearing actually works — a simple question-and-answer approach can make things much clearer.
Below are some of the most common questions people ask about negative gearing, answered 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 practical terms, this means the rent you receive doesn’t fully cover expenses such as loan interest, property management fees, insurance, rates, and maintenance.
When expenses exceed rental income, the property is considered negatively geared.
Why Would Someone Invest in a Negatively Geared Property?
At first glance, making a loss doesn’t sound appealing.
The main reason investors consider negative gearing is because the loss may be tax-deductible. If structured correctly, that loss can potentially be offset against other income, such as a salary, reducing overall tax payable.
Many investors are also focused on long-term capital growth rather than short-term cash flow.
Does Negative Gearing Mean You Get the Money Back at Tax Time?
No — and this is a very common misunderstanding.
A tax deduction doesn’t refund the full loss. It usually returns only a portion of it, depending on your tax rate.
You still need to fund the shortfall between rental income and expenses throughout the year.
Is Negative Gearing Only About Tax?
No. While tax is part of the picture, cash flow is just as important.
A negatively geared property requires you to contribute money on an ongoing basis. If that contribution isn’t comfortable, the strategy can quickly become stressful.
That’s why negative gearing should always be considered in the context of your broader financial position.
Does Negative Gearing Work the Same for Everyone?
No.
Your income level, tax bracket, loan structure, and interest rate all influence how negative gearing works for you.
For some people, the tax benefit may be meaningful. For others, it may be limited. This is why personalised advice matters.
How Does the Loan Structure Affect Negative Gearing?
Loan structure plays a major role.
Interest rates, whether the loan is interest-only or principal and interest, and how offset accounts are used all affect cash flow and the size of the loss.
The way the loan is set up can make negative gearing more manageable — or more expensive.
Is Negative Gearing a Short-Term or Long-Term Strategy?
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.
Most investors using negative gearing are thinking long term, with capital growth as the main objective.
What Are the Risks of Negative Gearing?
The main risks include cash flow pressure,
