Yellow Brick Road: Home
YBR

Andrew Morello: What is negative gearing?

In this article:

An excerpt from Andrew Morello's eBook The Morello Matrix: your guide to property investment. Andrew, the winner of the first series of Celebrity Apprentice Australia, provides his comprehensive personal approach to buying real estate and building a property portfolio.

To get your free copy of the full Morello Matrix eBook visit www.ybr.com.au/morellomatrix

Firstly, negative gearing only applies if you are renting out your property.

Negative gearing is when your investment costs are higher than your rental income, which you claim in your tax to reduce your taxable income.

You can think of negative gearing as a tool for reducing your losses.

When property investors own several properties, all of them negatively geared, they can pool their losses and reduce their assessable income accordingly.

Take the first step

So property investment can be viewed from two perspectives:

  • investment property as part of a wealth strategy, using cash-flow positive properties to cover the mortgage repayments so a portfolio of properties can be built;
  • investment property as tax planning for high income earners, who use negatively geared properties to reduce their tax bracket; they might end up with a capital gain when they sell the property, or hold the property and eventually make it cash-flow positive.

Positive gearing is where the income your property produces is greater than the ongoing costs, including loan repayments.

The question of whether to own investment properties that are cash-flow positive or that are negatively geared is one of personal taste.

I definitely lean towards cash-flow positive. I believe that a good business is one that makes more money than it spends, and so that’s how I like to do it. 

Feature articles

How to Find and Keep Good Tenants Is there a secret formula for renting your property to the best tenants? Let’s take a look.

What to Know about Home Loan Serviceability? When applying for a home loan, how much debt is it okay to have?

5 Ways to Calculate How Much Life Insurance You Need Think it's complicated trying to figure how much life insurance cover is enough? It doesn't have to be.

How To Get the Right Loan For Your Car Whether you're buying a new car or opting for a pre-loved model, you’ll face a smorgasbord of finance options. When considering a loan for your new set of wheels, here are some tips for choosing wisely.

The Importance of a Mortgage Broker This article will shed light on the Royal Commission's recommendations and briefly highlight some of the benefits of using a mortgage broker.

View all articles



Enquire now