Negative Gearing Explained: Pros and Cons for Property Investors

1. Introduction

Negative gearing.
Two words that spark endless debates at every property dinner table in Australia.

Some call it a tax loophole.
Others call it a wealth-building strategy.

Either way — if you’re serious about investing, you need to understand how it works.
Because negative gearing can either boost your returns…or burn your cashflow if you’re not careful.

Let’s break it down in plain English.

2. What is Negative Gearing?

Negative gearing happens when the costs of owning an investment property (think loan interest, maintenance, rates, insurance) are higher than the rental income you earn.

In simple terms:
You’re making a loss — and the ATO lets you use that loss to reduce your taxable income.

Example:

• Rental income: $25,000/year
• Property expenses (loan interest, maintenance etc.): $35,000/year
• Loss: $10,000
  You can offset that $10,000 loss against your regular income (like your salary), reducing your overall tax bill.

3. How Does Negative Gearing Work?

It’s a three-step dance:

1. You invest in a property.
2. Your rental income doesn’t cover all your expenses — you run at a loss.
3. At tax time, you claim that loss to reduce your taxable income — meaning you pay less tax.

✅ Lower tax payable.
✅ Potential for the property value to grow over time, wiping out those short-term losses with long-term gains.

But — and this is important — you’re still losing real cash every year until that growth materialises.

4. Pros of Negative Gearing

1. Immediate Tax Benefits
Every year you run a loss, you can lower your taxable income and pay less tax.

2. Long-Term Capital Growth Potential
Investors often aim to hold negatively geared properties in high-growth areas, banking on big capital gains later.

3. Helps Afford Higher-Value Properties
Negative gearing can allow investors to stretch into stronger suburbs they otherwise couldn’t afford upfront.

4. Portfolio Expansion Strategy
For seasoned investors, using negative gearing across multiple properties (with staggered cashflow timings) can speed up wealth creation — if managed correctly.

5. Cons of Negative Gearing

1. Ongoing Cashflow Strain
You’re paying out of pocket every month. If your income drops (job loss, illness), you could be in trouble.

2. Betting on Capital Growth
Negative gearing only makes sense if the property’s value rises enough to outweigh your losses. Markets can stagnate — or crash.

3. Interest Rate Risk
If rates spike (as they have recently), your losses widen. Fast.

4. Policy Risk
Governments occasionally flirt with changing or scrapping negative gearing rules. If that happens, property prices and investor returns could be hit.

6. Is Negative Gearing Right for You?

Before diving in, ask yourself:

• Can I afford negative cashflow month after month, year after year?
• Am I investing in a high-growth market — or just speculating?
• Is my risk tolerance high enough to ride out downturns?
• What’s my backup plan if interest rates rise again?

Negative gearing isn’t a get-rich-quick trick.
It’s a longer-term play — and it’s only worth it if you have the financial buffers and strategic plan to back it up.

7. How Property Dollar Can Help You Run the Numbers

Want to see if a property is worth negatively gearing — before you sign the dotted line?

Use Property Dollar’s calculators to: 

✅ Forecast cashflow scenarios
✅ Analyse suburb growth prospects
✅ Run rental yield comparisons
✅ Optimise your loan structure for better cashflow

Download Property Dollar now and invest with clarity, not guesswork.

Smart investors don’t just hope for gains — they run the numbers.

8. Conclusion

Negative gearing can be a powerful tool.
But it’s not magic.

It requires careful cashflow management, a strong understanding of your risk appetite, and a suburb strategy that actually makes sense — not just hope.

Before you take the plunge, run every scenario.
Use smarter tools. Build stronger buffers.

Your future self will thank you. Download the Property Dollar app here and start investing with your eyes wide open.