WHY POSITIVE GEARING
THE MATHEMATICAL REALITY OF PROPERTY INVESTMENT
When you strip away the industry hype and tax rhetoric, the numbers tell a clear story about negative versus positive gearing:
The Tax Benefit Fallacy
For an investor in the 37% tax bracket with a property running at a $10,000 annual loss:
- Annual cash outflow: $10,000
- Tax saving: $3,700 (37% of the loss)
- Net cost to investor: $6,300
Let's be absolutely clear: You are still losing $6,300 per year.
Any strategy that begins with "lose money to save on taxes" deserves serious scrutiny.
The Capital Growth Requirement
For negative gearing to deliver the promised wealth benefits:
- Your property must achieve enough capital growth to offset years of accumulated losses
- Plus cover the opportunity cost of capital tied up in those losses
- Plus outperform what you could have achieved with positive cash flow properties
In today's market conditions, this is
an increasingly risky bet
THE HIDDEN COSTS OF
NEGATIVE GEARING
Beyond the obvious ongoing cash flow drain, negative
gearing imposes several less- discussed costs on investors:
Opportunity Cost
Every dollar that subsidizes a negatively geared property is a
dollar that isn't:
- Earning interest in secure investments
- Being invested in positively geared properties
- Available for further property purchases
- Working toward debt reduction
- Contributing to your lifestyle
Reduced Borrowing Capacity
Banks assess your ability to service debt based on your income and expenses. Negatively geared properties:
- Reduce your net income position
- Are viewed as liabilities by lenders
- Limit your ability to expand your portfolio
- Can prevent you from capitalizing on new opportunities
