What is negative gearing?

Put simply, negative gearing is losing money on a investment, usually real estate. The loss comes about when the costs of owning the property exceeds the rent received. The major cost is usually interest.

Why would somebody want to lose money? Even if the loss is tax deductible.

The answer is that the investor is hopeful of making a capital gain on the sale of the property. The gain on the sale adds to your wealth, the losses incurred along the way don’t.

This is the key to making negative gearing work. Don’t concentrate on the losses, concentrate on making gains by buying quality investments.