There are many terms in the real estate industry and knowing what is what can be confusing. But with a little research and an expert by your side, the ins and outs of investing don’t have to be so intimidating. One term many people may not understand is negative gearing.
“Negative gearing is when the interest you are paying on the loan is more than the income you are receiving”
What is it?
Negative gearing is actually a lot more straightforward than it may sound. Gearing is the borrowing of money to buy an asset. When you are talking property, this means your home loan. Negative gearing is when the interest you are paying on the loan is more than the income you are receiving, you are making a loss. Neutral is when the interest is equal to the loan repayments and positive gearing is when the interest you are paying is less than the income and you are consequently making a profit.
Then why is negative gearing a good thing?
Of course losing any amount of money on an investment is not the desired outcome for any investor. While many investments are negatively geared, the benefit actually comes from the capital growth. What this means is, although you may be paying higher interest repayments than rental income received, the capital appreciation and accordingly the value of the property, appreciates at a greater amount than the interest paid.
Still confused?
Don’t worry, that’s why we’re here! Templeton Property are Brisbane’s property experts, with qualified staff who can help you with your investments, from buying and watching your investment grow to selling and getting a great return on investment. Gearing can be confusing and it will be different for every property, making it essential to talk to an expert about it before committing to anything.
For more investment property advice or to book an appointment, call Templeton Property on (07) 3368 1988.