If you’ve been looking into property investing, you’ve probably heard the term “negative gearing.” It sounds technical, but it’s actually a pretty simple concept once you break it down.
Here’s the easy version.
1. What negative gearing actually means
Negative gearing is when your investment property costs more to hold than the rent you’re earning.
In other words:
Your expenses are higher than your income.
Expenses usually include:
- Loan interest
- Rates
- Insurance
- Property management fees
- Maintenance
If the rent doesn’t cover all of that, you’re making a loss — and that loss is what people call negative gearing.
2. Why some investors choose negative gearing
Negative gearing isn’t about making money from rent — it’s about long-term growth.
Investors who use this strategy usually expect:
- The property to grow significantly in value over time
- The capital growth to outweigh the short-term losses
- Tax deductions to reduce how much those losses cost
Because the property is running at a loss, investors can claim certain expenses against their taxable income, which helps soften the blow.
This strategy only works well when the property grows strongly in value.
3. Positive vs negative gearing (simple comparison)
Negative gearing is when you lose money each week but hope for strong long-term growth. It relies on capital growth, a strong long-term market and tax deductions to help reduce the losses.
Positive gearing is the opposite — your rent is higher than your expenses, and the property basically pays for itself. It relies on strong rental returns, sensible purchase prices and a property that can fund itself.
Neither strategy is “right” or “wrong” — they just suit different goals. But for many everyday, first-time investors, positive gearing feels safer because the cashflow is more stable, predictable and easier to manage.
4. When negative gearing makes sense
Negative gearing can be effective if:
- You’re in a high-growth suburb
- You can comfortably afford the short-term losses
- You have a strong income
- You’re thinking long-term (10+ years)
It’s not usually the best option for someone who needs cashflow or wants an investment that pays for itself.
But for buyers focused purely on long-term capital growth — and who can comfortably carry the difference — it can be part of a smart strategy.
