Negative Gearing

From: Even Steven

Somebody help please.
I jus gotta unerstan de problem wit negative geering. Why are some people opposed to negative gearing as an investment strategy. Even if you forget about the tax implications, if the IP is in a high capital growth area, what is the problem.
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Reply: 1
From: Rolf Latham

Hi Steven

Its a thing of principal with most.

There is no real problem, you will find most of the people on this forum that have nice portfolios have some loss making properties in there that will provide growth.

The positive cashflow brigade will tell you that they dont want to subsidise a future potential growth that may never occur, whereas the Capital growth people will tell you "thats where the real wealth creation is"

Who is right ?

They both are in different circumstances. People with high disposable incomes and high tax bills can justify a loss more so than someone on a small income simply because the tax man covers more of the loss.

Many say you cant get both positive cashflow and capital growth - I can tell you undoubtedly it is being done regularly, I do the finance side of those deals at least 20 times a year.

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Reply: 1.1
From: Frank Shead

Rolf I am in full agreement with you. In one year I placed finance for over 30 NG properties apart from PG.

Frank Shead
It their interpretation versus someone else's.
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Reply: 2
From: Dale Gatherum-Goss


I think it's called brain washing . . . to close your mind completely to the possibility that another strategy might work for someone else seems somewhat immature and short sighted.

As Rolf said, each of us have different cashflows and different needs from an IP and wealth creation strategy.

As you'll see from some of my other posts, at least getting some people into the game is a good thing and often a few years later the penny clicks and they start to make better choices.

I've said on many occasions, the most important thing is to develop a set of riles and guidelines by which YOU wish to invest as what other people do may or may not sit with your goals and needs.

Have fun

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Reply: 2.1.1
From: Kevin Forster

There is nothing wrong with negative gearing so long as you buy in a high growth area.

The only problem is which area is a high growth area and for what period will it be a high growth area? If you could pick that consistently you could make alot of money from property. You could make even more money from seminars!

It's not dissimilar to picking the next share that will double in price over the next year and margin lending on it. Many people try to pick the next high growth area, some succeed through skill and some by luck. The trick is to be honest and say whether it was luck or skill. If it was luck and you think it was skill, you'll be giving your gains back to the market on the next deal.

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From: Mark Laszczuk

Many people are suffering from Kiyosaki-itis, a very difficult disease to cure, as it promotes close-mindedness, especially from novices. In other words, many people read Rich Dad, Poor Dad and due to the popularity of the guy, think his opinion is the be all and end all of investing in property, not realising that investing in property in U.S., although largely similar is in some ways quite different to here, as neg. gearing is allowed, whereas in U.S. it is not. So they carry over his way of investing, steadfastly refusing to even acknowledge that any other strategy might work. I should know, I used to be one of them...doh! Thankfully, I've opened my mind a little more these days, and while I believe that Kiyosaki has done a lot of good in the investing world (RDPD is still an excellent read and Cashflow helps so many of our own posters) his +ive/-ive gearing opinions aren't really that relevant here in Oz due to the difference in the laws governing said strategies.

'no hat, some cattle'
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From: Steve Navra

Hi Even,

I couldn't help chipping in on one of my favourite topics:

Can only agree with Rolf, Dale, Frank, Kevin and Mark.

The real point is that Property is Property,
meaning they all can be good, if your selection criteria are accurate. (Which is another topic in itself)

Now the real point about whether the structure should be negatively or positively geared, is all about cashflow.

As Dale rightly says, these with great income are not so fussed with positive gearing - reasons being: Firstly they have heaps of serviceability and secondly they get the best of the tax break.

Then there are those who absolutely need to rely on every dollar of income for serviceability - hence their choice of positive cashflow, to help get the loans they require and also to help cashflow the holding cost of all these assets. (After all you got to be able to eat as well.)

So, it is different strokes for different folks.

However, the tune I have been singing for so long is that it is all in the structure and that the conversion of equity into an income stream will simultaneously solve all these issues:

1) Create extra serviceability
2) Provide cashflow to hold many assets
3) You also get the benefit of the tax deductions, because although the structure gives excess cashflow, the asset is still negatively geared.

Who says you can't have your cake and eat it?


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From: Ian Johnson

Hi everyone, I've come from a situation where I have had high income and now have little income so I am tending towards positive cashflow investments. As this is new to me, I would appreciate some input regarding what to look for or how to find these properties. Do I look in country areas where the house prices are lower and the rents more than cover the loan, or do I look for the house with the rentable granny flat to boost income or is it these options and more? As I've mentioned previously, I currently have a 1/2 share in a positively geared property. Also, how do you beat other people to these opportunities? Roosy
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From: Darren B

The only way to beat em is to get better than them. Hassle agents, they wont ring you.
As for + cashflow, granny flats will work, however nothing beats the larger regionals for cashflow. I recently picked up a small block of 1 bedder units for 110k that rents for $17,500 per annum.. So they are out there.
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From: Darren Beech

do u mind if i ask which regional town Darren?
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