How To Use Negative Vs Positive Gearing To Your Advantage?

Negative gearing is a strategy where you borrow money to buy a property, and then rent the property out. This allows you to claim a tax deduction for the interest you pay on the loan. 

Positive gearing is when you buy a property with the intention of renting it out. This can be a good strategy if you think that the market is going to be tough to break into and you don’t want to commit too much money upfront. 

If you're considering investing in property, it's important to be aware of the positive cash flow vs. negative gearing  that can affect your returns. 

Negative Vs Positive Gearing

Here are a few things about gearing strategies:

  • The main benefit of positive gearing is that it allows you to make more money from your investment. The main benefit of negative gearing is that it allows you to reduce your taxable income. 

  • When using positive gearing, your investment is primarily relying on the growth of the asset (property). This means that if the market conditions change and the value of the asset falls, your return will decrease. 

  • On the other hand, if you use negative gearing, your investment is mainly relying on rent payments. This means that if the market conditions change and the rents increase, your return will increase. However, there are some risks associated with negative gearing – if you cannot maintain a consistent rent stream or if there are unexpected costs associated with renting out a property, these could lead to losses for your investment. 

Ultimately, it's important to weigh all of the risks and benefits before making a decision about whether or not to use positive or negative gearing in your investments.