The Good and Bad of Negative Gearing
Negative gearing is often talked about as either a smart investment strategy or something to be cautious about — depending on who you ask.
The truth is, negative gearing has both benefits and drawbacks. Understanding both sides is essential before deciding whether it makes sense for your financial situation.
Let’s look at the good and the bad in simple, practical terms.
The Good: Potential Benefits of Negative Gearing
It Can Reduce Your Taxable Income
One of the main reasons negative gearing is popular is because the loss from a negatively geared property may be tax-deductible.
If the property’s expenses exceed its rental income, that loss can often be offset against other income, such as your salary. This may reduce your overall tax payable.
For people in higher tax brackets, this benefit can be more noticeable.
It Can Make Holding an Investment More Manageable
While negative gearing still costs money, the tax benefit can reduce the after-tax impact of holding the property.
This can make it easier to manage cash flow in the early years of an investment, particularly when interest costs are higher.
It Supports Long-Term Investment Strategies
Negative gearing is commonly used by investors focused on long-term capital growth.
The idea is that while the property may cost money to hold initially, its value may increase over time. If that growth outweighs the holding costs, the investment can still be worthwhile.
It May Improve Portfolio Growth Over Time
For some investors, negative gearing allows them to hold higher-quality assets or enter markets they otherwise couldn’t afford.
This can support longer-term portfolio growth when used carefully and alongside a broader financial plan.
The Bad: Risks and Downsides of Negative Gearing
You Are Making a Real Cash Loss
The most important downside is also the simplest: negative gearing means you are contributing money each month to hold the property.
Even with tax deductions, you are still out of pocket. If cash flow is tight, this can become stressful.
Tax Benefits Are Often Overestimated
A common misconception is that negative gearing means you get the loss “back” at tax time.
In reality, a tax deduction usually only returns a portion of the loss, depending on your tax rate. You still fund the rest.
Interest Rate Changes Can Increase the Cost
Negative gearing is sensitive to interest rates.
If rates rise, the cost of holding the property increases, which can deepen the loss and put pressure on cash flow.
This is why buffers and income stability are important.
It Doesn’t Suit Everyone
Negative gearing tends to work best for people with stable incomes and strong cash flow.
For those with variable income, limited buffers, or short-term investment horizons, the risks may outweigh the benefits.
Capital Growth Is Not Guaranteed
Negative gearing relies heavily on the expectation of long-term property value growth.
If the property doesn’t grow as expected, the ongoing holding costs may outweigh any eventual gains.
Why Advice Matters
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 the deductions apply to your circumstances.
At the same time, the loan structure plays a major role in how manageable the strategy is.
How Chase Helps You Assess the Finance Side
While negative gearing is often discussed as a tax concept, the finance setup behind the investment is critical.
Chase Douglas has extensive experience in mortgage lending and helps investors understand how loan structure, interest rates, and cash flow impact strategies like negative gearing.
Chase focuses on clarity — helping you understand both the upside and the risk before decisions are made.
So — Is Negative Gearing Worth Considering?
Negative gearing can be useful in the right circumstances, but it’s not a strategy to follow blindly.
Understanding both the good and the bad allows you to make decisions based on your income, goals, and comfort with risk — not just tax outcomes.
👉 Book a conversation with Chase Douglas to understand how investment lending works and whether negative gearing suits your situation.
Good decisions start with balanced information.
