Negative Gearing - Is it all negatives?

First things first, What is negative gearing?

Picture this: You bought a property and your expenses are stacking up to be more than the rental income. Thus, you’re making a loss, right? Well, not entirely. Welcome to the world of negative gearing. It’s a bit like taking two steps back to make a giant leap forward. You can offset these losses against other income – like your salary, reducing your overall taxable income. Intriguing, isn’t it?

Now we know what it is, but how exactly is it playing out in the Aussie housing market?

2023 has brought out some interesting developments, and negative gearing has become a hot topic, touted as a tool for wealth creation but also criticised as a driver of housing unaffordability. But here’s the deal: It’s not all doom and gloom.

Despite some initial concerns that negative gearing could fuel a housing bubble, there’s been a gradual stabilisation in property prices this year. Investors have remained relatively cautious and diligent in their property selection, which has helped to mitigate the risks. Negative gearing continues to offer opportunities for smart investors, providing the potential for long-term capital growth and improved tax efficiency.

As always – there’s a catch.

Negative gearing isn’t a one-size-fits-all strategy! Your financial situation, risk appetite and long-term property goals go a long way in determining if negative gearing will work for you.

Whether you’re a first time investor, or an experienced property mogul it’s always best to chat to a savvy financial professional who can ensure you’re making the right financial decision for you – and not getting you caught in a tax trap.

To wrap things up – The 2023 housing market is a landscape rich with potential but also fraught with complexities, and negative gearing is a financial strategy which can be fruitful for the right investor in the right circumstances but the overall market sentiment is flat, and people are looking for things to be angry with. We deal with hundreds of investors every month, and I can assure you that the trust benefit they are getting from “Negative Gearing” is not that significant.

It isn’t actually that helpful for most people.