Negative Gearing Property Investment Strategy
a Plan
The Truth About Negative Gearing in Australia
Negative gearing is one of the most misunderstood, yet too often used, property strategies.
On the surface, it sounds weird straightaway — why on earth would you want to lose money every single month? But, when applied wisely and used only in the right way — negative gearing could be a path to wealth creation.
At Property Portfolio Solutions, we don’t recommend a negative gearing property investment strategy as a route for everyone. Instead, we use it selectively — purely for the ideal investor, in the perfect financial circumstances, and in the particular locations where capital growth is highly likely.
Negative Gearing for Dummies
The Basics of Negative Gearing
By that, we mean a 101 explainer — not that negative gearing is for fools (well, actually, it can be sometimes).
Negative gearing basically means your property is costing you money — at least on paper. This could mean that your rental income doesn’t cover all the expenses like the mortgage, insurance, maintenance, or strata fees — so you have to dive into your own reserves to keep the project running.
However, not all negatively geared properties literally drain your hard-earned dollars.
The Depreciation Anomaly
Due to depreciation, particularly on new builds, a property can be cash flow positive — you’re making money week-in-week-out — but still tax negative when depreciation is accounted for.
The Bottom Line
In the right circumstances, the potential long-term capital gains can far outweigh those short-term losses — but only if the property significantly increases in value. High-risk tolerant, negatively geared property investors rely on this happening.
It’s a fingers-crossed exercise, but it can be one based on evidence — where market-knowledgeable advisors such as PPS can balance the threat, through experience and portfolio balancing.
Who Are Negatively Geared Properties For?
For negative gearing to stand a chance of working at all, you need to fulfil a minimum of two criteria:
Your property must be in a high-growth area, and its gains are almost guaranteed to increase to exceed your expenses.
You, as the investor, must be able to stand the costs over the long term.
In short, it’s not a strategy for the first-time investor, the faint-hearted, the worrier, the short-termer, the profit/cash flow seeker — or indeed anyone who likes a good night’s sleep.
Your losses might be tax-deductible, but that’s really not the reason to do it. The only motivation to go for a negative gearing strategy is if the long-term gain beats the shorter-term pain. If it doesn’t? You’re spending money for no reason.
The Pros and Cons of Negatively Geared Property Investment
Negatively geared properties aren’t for everyone. Used right, they can supercharge your long-term growth — used wrong, they can cause major financial stress.
The Potential Upsides of Negatively Gearing Property
Long-term capital growth — only if you’ve chosen the right property.
Tax losses offsets — possible deductions that might reduce your taxable income.
Portfolio balancing — strategic use of negative gearing may complement positively geared assets.
Depreciation benefits — especially with new builds, where you’re the initial owner.
Diversification opportunities — negative gearing can allow you to diversify your portfolio without requiring a large upfront capital investment.
Long-term rental income increases — although initially negatively geared, rent might increase over the years, moving into a positively geared position.
Offsetting Capital Gains Tax (CGT) — not an immediate benefit, but future gains from the sale of a negatively geared property could be partially offset by the accumulated losses.
Negative gearing can work — but if you’re not growing wealth in the process, then what’s the point?
Shaun Davison, PPS
The Potential Downsides of Negatively Gearing Property
You need serious cash backup — strong cash flow or savings to cover the shortfall.
Risky in low-growth areas — if the property doesn’t increase in value, you’re making a loss for nothing.
Can restrict borrowing — banks hate risk, negative cash flow really worries them.
Continuous financial strain — consistently covering shortfalls can put significant pressure on your finances.
Interest rates — escalating interest rates could significantly increase your mortgage repayments and worsen negative cash flow.
No tenants — vacancies or bad payers can mean you pay out even more money to cover costs.
Missed opportunities — the cash you’re spending to cover losses could have been used on a different, positively geared project.
Market downturns — if the property market declines, you’re in real trouble.
Negative gearing can work — but if you’re not growing wealth in the process, then what’s the point?
Shaun Davison, PPS
When Does Negative Gearing Make Sense?
At PPS, we only recommend this riskier strategy when it matches your stage of life, financial circumstances, and long-term ambitions.
Negatively geared property investments might be worth exploring if you:
Already have high income and cash flow, and strong serviceability.
Fully understand the risks involved.
Are chasing long-term capital growth in particular high-performance locations.
Have positively geared properties in your portfolio to balance the negative.
Are happy with short-term loss for future growth.
Have access to depreciation and other tax deductions to soften the impact.
We can also look at whether building and holding could work for you. New builds might allow for depreciation and an immediate uplift, giving you more advantages — even in a negatively geared scenario!
Why Choose PPS for Negative Gearing Investment Strategies?
At PPS, we’re not here for off-the-shelf solutions, and we really don’t believe in pushing negatively geared property investments as our default route.
Instead, we begin by listening to your ‘why’. We look at what you want to achieve, where you’re starting from, and how much risk you’re comfortable with. Then, and only then, do we explore whether negative gearing fits — and if it doesn’t — give you targeted strategies that will work.
Our Tailored Negative Gearing Investments Strategy Helps You With…
Identifying suburbs — that demonstrate serious capital growth potential.
Showing you the difference — between properly negatively geared investment and just bad investments!
Running the numbers — factoring in mortgages, depreciation, and holding expenses.
Easing your fears — through our knowledge, experience, and professionalism.
Balancing negative investments — with positively geared portfolio properties.
Taking care of the stresses — so you’re not lying awake at night worrying about the next payment.
Achieving your goals — with thorough, strategic, and well-considered negative gearing.
Building a lasting partnership — we’re in this together, every step of the way!
Cutting out the BS — if we think negative gearing is a bad idea for you, we tell you straight.
Negative Gearing Property Investment FAQs
Can You Explain Negative Gearing in Australia?
Negative gearing means you’ve bought or built a property where the expenses — such as the mortgage, maintenance costs, and insurances — are more than the rental income. Yes, you’re making a loss — but you’re hoping the property increases in value over time, and you’ll profit when you sell.
Is There a Negative Gearing Calculator I Can Use?
While PPS have a multitude of online calculators available — a negative gearing calculator would oversimplify things, and possibly put you in a highly risky situation, if the outcomes it provided looked appealing.
Your finances and future are worth more than a few key presses. At PPS, we look at depreciation, your income, future growth potential, and whether the property actually fits your goals. Want a proper, well-considered strategy? Chat with us.
Why Is Negative Gearing Bad?
It’s not always a bad idea — but going into a negatively geared situation without advice is incredibly risky. You could be…
- Paying out more money than you’re earning.
- Gambling on property value growth that might never happen.
- Chasing tax benefits — and that’s always a bad move.
- Risking everything if your property is empty, interest rates increase, or you suffer a downturn in personal income.
That’s why at PPS, we only suggest this strategy when the benefits are clear, you’re happy with the risk, and the pathway fits your long-term goals.