What does Negative Gearing a rental property mean?
Ó Negative gearing simply means the “loss” generated by a rental property. That is, the interest and other deductions which are allowed to be claimed are higher than the rental income received. The idea is that you use the current tax laws to gain a benefit from the loss on the rental property to offset this loss against your other income such as salary income. At the same time, and in most cases, an interest only loan is taken out over a period of say 5 years. The rational behind this is that property values will increase and in generally double in value between 5 to 10 years depending on the location of the property but your loan remains the same. After a period of 3 to 5 years it may be possible to use the equity in both your rental house and perhaps your own home to purchase another investment house. Hopefully by this time your salary income would have increased as well as your rental income to keep pace at least with inflation. An example of how negative gearing works is as follow
