Negative/Positive Gearing

From: Even Steven

Hi everyone.
I get the impression that the American gurus advocate that any investment should be positively geared from the beginning with capital growth being not so important. But that seems to me like a short-sighted view because it is the capital growth that will pull the rental up making the investment more and more cashflow positive in the future. So in considering the long term it seems to me that positive cashflow at the beginning is not so important and capital growth is important. What do you think?
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Reply: 1
From: Owen .

The reason Americans buy positive cashflow investments is there is no negative gearing allowances in the US. Why would they buy an investment that was losing money on the hope that there would be some capital gain sometime in the future? Kind of makes sense.


"Gambling promises the poor what property performs for the rich – something for nothing"
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Reply: 1.1
From: Robert Forward

And the sooner the Negative Gearing Laws are removed in Australia the better it will be for all us too.


The Sydney "Freestylers" Group Leader.
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Reply: 2
From: Dale Gatherum-Goss

Hi Steve!

I firmly believe that we should each develop our own rules by which we play this game. Some will insist on positive cashflow and not care about Capital Gain because the property pays its own way and still puts extra funds into your hand.

Others, of course, swear by Capital Gain and are prepared to fund a shortfall to give them that growth in value.

Others again use more exotic techniques such as wraps to achieve their goals.

All are right.

Negative gearing is not always best for each individual, but, as one who sees people buying property for many different reasons (good and bad) - the benefits of negative gearing get some people into the game and I believe that this is the best thing. They are now in and soon learn other ideas, techniques, and reasons to buy more - with a little encouragement.

As always, there is no one right way to invest in property. If there were, none of us would need to frequent this site and learn from each other.

I urge you to develop ideas and thoughts about what it is that YOU are trying to achieve with your investing, and then to identify the time frame that you wish to achieve those goals.

Then, you can decide whether positive or negative gearing makes more sense to you in context of your own goals.

Have fun

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Reply: 2.1
From: Even Steven

Why do you think they should get rid of the negative gearing allowances in Australia. By allowances I assume you are referring to being able to offset the investment loss against other income.
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Reply: 3
From: The Wife

Steve, depends on what your strategy is, this brings in the old negative gearing or positive gearing debate, some people have very defined strategies, some have a mixture of both. Its what strategy suits you best.

Anyway, who said American Gurus are right or wrong? They are just people who have tried something and it worked so they now teach what they know. There is more than just one path.

Who are the Australian gurus by the way? Anybody know? I'm gonna post this question in a new thread.

~Before you criticize people, you should walk a mile in their shoes. That way, when you criticize them, you're a mile away. And you have their shoes~
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Reply: 3.1
From: Sergey Golovin

It is all depends if you are salary earner or not.

Political and investment landscape has changed dramatically for the last 20 years.
What was OK 20 years ago is no longer suits everyone.

20 years ago half of working population was working for the Government - schools, army navy and air force, telecommunication, power, transport (rail, air, sea, road), police (as well as security and prisons), universities, hospitals, national parks, water, local governments - councils, etc. etc.
Australian society was not that reach (to pay rent) on one hand, on the other hand half of population or more were salary earners. So, the negative gearing back then was just right thing to do.

Today it all changed. Country is more or less established, government interference and backing is no longer required on the same scale as it used to be. Lots of companies have been privatised (for better or worth). Looks like it is time to introduce few other products/possibilities I think.

Probably it will happen eventually.

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Reply: 3.1.1
From: Phillip Monk

Allowances for negative gearing were removed by Hawke/Keating around 1986-87.

Jan Somers covered it in one of her books (can't remember which one, it was one of the first two). Basically she said that lots of investors were scared out of the market as a result (ie prices fell), but of course with less rental properties on the market, rents went up, so yields went up dramatically.

The shortage of private housing put a big strain on the various state housing trusts which couldn't keep up with the demand so the government put the laws back the way they were.

Those who could afford to stay in for the long haul did very well out of it, I believe.

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From: Gail H

Please see my post on the topic "No Topic"

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