Never quite understood what Negative Gearing means when investing in property? Here’s a quick guide to the basics of these investment buzz words.
Negative gearing means that the interest being paid on a loan is more than the rental income received. Effectively, you are making a loss. This continues until you get to a point where the income rises to exceed the costs. Why is it an advantage? Losses made from this type of investment can be offset against your taxable income in Australia. You need to ensure that you have an income in a high enough tax bracket that will offset the amount of loss adequately. Negative gearing works best if you:
- Have high job security
- Are willing to accept a moderate amount of risk
- Have paid off your own home
As with all major financial decisions, always seek expert advice from a registered financial advisor or your accountant.