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When is a Good Time for Negative Gearing?

30 Sep 2011 Cleveland 0 Comment

Put simply, negative gearing is where you borrow enough money on a property to ensure that the total outgoings exceed the income it earns. Outgoings include loan interest on the loan and such things as rates, maintenance, land tax, and insurance. It creates a tax loss, which can be offset against other taxable income in certain cases. Negative gearing is only worthwhile on an investment property which is fully leased.

To make negative gearing work, you must have the prospect of capital growth. If there is no capital growth, then you are only funding losses.

Property is a growth asset. The whole issue of negative or positive gearing is a red herring. The real reason is to build equity. It’s the quality of the asset that decides whether you become financially independent, not the gearing.

So, is there a real prospect of capital gain on property at the moment? To put it another way, has the property decline bottomed out. The market has been flat for about 3 years, and there is good reason to expect that property values will come off of their low point in the next 12 to 18 months or so. But a recovery will not be sudden, it takes time for property values to rebuild. Good property holds its value best in any decline, and it is the first to rise in value when the market stirs.

We at Professionals Cleveland can advise you on any real estate matter. Call into our office corner Middle and Doig Streets, Cleveland.

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