Negative gearing is a strategy that allows the income generated from an investment property to be greater than the cost of its holding. The goal of negative gearing is to generate a net after-tax profit. While it might seem like this strategy would be better for making more money, it actually has some significant limitations.
How do you invest your money? Learn how the difference between negative vs positive gearing strategies can affect your investments, and what you need to know before making any decisions.
Intro To Negative Vs Positive Gearing
Negative Gearing: It is when you sell a property for less than the amount you paid for it, which gives you a profit. This is done in order to reduce your tax liability. The main benefit of negative gearing is that it allows you to use capital gains (the increase in the value of your property) to offset other income, such as salary or pension income.
Positive Gearing: It allows you to borrow money and invest in assets such as property with the hope of making a large return. The main benefits of positive gearing are that it can provide extra cash flow and help you build equity in your property. However, there are also some risks associated with this strategy, such as an increased risk of default on your mortgage and loss of your investment if the market conditions change.
It's important to note that positive and negative gearing have different impacts on your investments.