Negative gearing in Australia is one of the most talked-about strategies among property investors. You’ve probably heard people mention it alongside words like “tax benefits”, “long-term wealth”, or “smart investment”. But just because it’s popular doesn’t mean it’s right for you. The real question is: does negative gearing align with your goals, your financial situation, and your risk tolerance?
At Unconditional Finance, we’re here to cut through the hype. Whether you’re a first-time investor or building your portfolio, this guide unpacks what negative gearing really means and helps you decide if it’s a smart move in today’s Australian market.
So You’ve Heard About Negative Gearing, But Should You Use It?
Many Australians are drawn to negative gearing because of its tax benefits. In simple terms, negative gearing occurs when the costs of owning a rental property, including loan interest, maintenance, and depreciation, exceed the rental income. You may be able to claim this shortfall as a tax deduction, which could lower the amount of income tax you need to pay.
Common motivations include:
- Reducing taxable income, especially for those on higher incomes
- Building wealth through long-term property appreciation
- Expanding investment portfolios with leverage
- Accessing wealth-building opportunities that aren’t reliant on superannuation or traditional savings accounts
- Gaining exposure to property markets while potentially deferring capital gains tax until sale
But here’s what many people overlook: as a property investment strategy, negative gearing isn’t a guarantee of success. It’s a strategy built on the assumption that your property will increase in value over time. If that growth doesn’t materialise, or your personal financial situation changes, the tax benefits alone may not be enough to keep you ahead. You need a clear plan for both the good years and the lean ones.
Positive Gearing vs Negative Gearing: Two Very Different Property Paths
Negative gearing involves short-term losses with the hope of long-term gain. Positive gearing is the opposite. Your rental income exceeds your expenses and provides immediate income from day one.
Let’s compare real outcomes:
- Positive gearing can offer steady cashflow and lower financial pressure, which might suit those nearing retirement or wanting passive income. For example, a positively geared property could provide supplementary income that supports early retirement, covers lifestyle costs, or offsets mortgage repayments on your own home.
- Negative gearing can potentially result in greater capital gains, but also involves a higher level of risk and out-of-pocket expenses. It could be a fit for growth-focused investors who are comfortable accepting short-term financial setbacks with the goal of building long-term wealth, particularly in high-growth suburbs.
When each makes sense:
- Positive gearing may suit you if you prefer stability, are on a lower income, or want to limit debt exposure. It’s often a better fit for investors who value predictability and want a buffer against market volatility.
- Negative gearing might work if you’re on a higher income, have strong cashflow, and are prepared to handle the market’s fluctuations over time. It may also appeal if you’re looking to build equity in a fast-growing location, even if the cashflow is negative in the early years.
Understanding both strategies helps Australian property investors weigh immediate cashflow needs against long-term capital growth. This is a crucial step in shaping an investment path that reflects your lifestyle and financial goals.
Who Is Negative Gearing Really For?
Negative gearing can work well for certain investors, but it’s not one-size-fits-all. Here’s how to tell if it fits your profile.
Income tiers and tax impact:
- High-income earners benefit most from tax deductions. If you’re earning over $120,000 per year, the tax savings can be significant. These deductions can reduce the sting of upfront losses and improve after-tax cashflow.
- Low to mid-income earners may not gain as much from the deductions and might find the cashflow burden harder to manage. In some cases, a neutral or positively geared investment may actually deliver better peace of mind and financial sustainability.
Behavioural traits:
- Risk-tolerant investors tend to manage negative gearing better. They’re comfortable with short-term losses and uncertain timelines. These investors often take a long-term strategic view and are proactive in monitoring performance, market trends, and regulatory changes.
- Cautious investors might prefer strategies with more predictable returns. They may be better suited to buying undervalued properties in strong rental markets or focusing on cashflow-first strategies to manage day-to-day costs.
Time horizon:
- If you’re investing for the long term (10+ years), negative gearing may pay off through capital growth. Many seasoned investors who’ve succeeded with negative gearing have held onto properties through multiple market cycles, allowing time for compound appreciation.
- If you need returns in the short term, or plan to sell within a few years, it may not be the most suitable choice. Short holding periods can limit capital gains and may expose you to losses, especially after transaction costs and taxes.
Ask yourself: Do I want long-term wealth or short-term relief? Your answer can help shape the right approach.
When Negative Gearing Is Worth It, and When It’s Not
Scenarios where negative gearing can be effective:
- You’re in a high tax bracket and want to offset taxable income
- You’ve found a property in an area with strong projected capital growth
- You have a stable job and cashflow to cover ongoing losses
- You’re investing as part of a long-term wealth-building plan
- You’ve accounted for vacancy periods, rate rises, and maintenance
- You’re working with professionals (e.g. broker, accountant, adviser)
- Your portfolio includes diversified assets to balance risk
- You’ve mapped out your exit strategy, such as when to refinance, consolidate, or sell for capital gain.
Situations where it may backfire:
- Your investment depends heavily on rental income to meet loan repayments
- You’re investing purely for tax benefits with no growth strategy
- The property is in a slow-growth or oversupplied market
- Interest rates rise and your cashflow becomes strained
- You don’t have a financial buffer for repairs or vacancies
- You haven’t factored in property management or compliance costs
- You’re emotionally unprepared for the pressure of sustained losses
In other words, if the numbers don’t work without the tax deduction, it’s a red flag. Your investment should be viable on its own. Tax incentives should act as a bonus, not a crutch.
Is It Smart to Buy Just for the Tax Perks?
One of the biggest myths in property investing is that tax savings alone make a property “worth it”. But the truth is, no amount of tax deduction will make a bad investment a good one.
Why tax shouldn’t be your only driver:
- You’re still losing money overall if the property doesn’t grow in value
- Tax rules can change (and have before)
- Over-investing for tax purposes can put your household budget at risk
- Tax benefits don’t build equity, capital growth does
Focus on property fundamentals instead:
- Location and infrastructure. Is the area experiencing growth, upgrades, or gentrification?
- Supply and demand trends. Are more people moving in than moving out? Is there a shortage of quality rentals?
- Demographic shifts and future development. Does the area appeal to long-term tenants? Are there schools, transport, healthcare, or employment hubs?
- Historical capital growth patterns. What’s the 10-year trend? Is growth consistent or patchy?
- Local rental yields and vacancy rates. Is the rental market stable or oversupplied?
A well-researched property with growth potential will deliver returns long after the tax benefits are gone.
The Downsides You Must Prepare For
Negative gearing isn’t without risk. If you’re considering it, be realistic about what could go wrong. Common challenges include:
1. Ongoing cashflow pressure
Can you comfortably cover losses each month without affecting your lifestyle or emergency funds?
2. Interest rate rises
Increases can sharply lift holding costs. Be prepared with buffers or fixed-rate options if needed.
3. Vacancy risks
A few weeks without rent can blow out your budget. High vacancy rates can drag down your returns and increase your stress.
4. Unexpected maintenance
Costs like plumbing, roofing, or compliance can add up quickly. Older properties especially may require significant upkeep.
5. Market downturns
If property prices fall, you may not recoup your losses. This can be especially problematic if you’re forced to sell during a low cycle.
6. Policy changes
Government reforms to negative gearing have been proposed before. It’s wise to plan for what might happen if concessions change.
7. Lender restrictions
Banks may assess negatively geared loans more strictly, especially under responsible lending obligations. Your borrowing power may be capped more quickly than expected.
8. Emotional strain
Financial pressure combined with uncertainty can take a toll. Understanding your stress triggers is as important as understanding the numbers.
How to Approach a Negatively Geared Property the Right Way
If you’re leaning towards negative gearing, here’s how to do it strategically, not emotionally. Key steps to make it work:
1. Run detailed cashflow modelling
Know your monthly shortfall under different interest rates. Use conservative estimates, and include buffer scenarios.
2. Choose high-growth locations
Look for areas with infrastructure investment, employment hubs, and rising demand, not just affordability.
3. Avoid high strata or body corporate fees
These eat into returns and can increase over time.
4. Buy below market value, if possible
Instant equity can cushion risks and improve long-term ROI.
5. Use an experienced mortgage broker
A Sydney mortgage broker can help you structure the loan effectively and find lenders that support investment goals, including interest-only periods or offset accounts.
6. Work with an accountant
Especially one who understands property tax laws and can help maximise deductions legally.
7. Review annually
Don’t “set and forget”. Check performance, revalue, and adjust as needed. Treat your investment like a business.
8. Plan your exit
Will you refinance, hold, or sell? Having a flexible, forward-looking plan gives you more control when markets shift.
Approach negative gearing with your eyes wide open. Make sure each part of your plan is supported by solid advice and data.
Ready to Move Forward? Your Next Steps
If you’re seriously considering negative gearing, now’s the time to take a closer look at your finances and investment strategy. A few smart next steps include:
✅ Book a consultation with a mortgage broker or financial adviser
They’ll help you assess borrowing capacity, property potential, and risk exposure. This step alone can clarify whether the numbers support your goals, or if it’s time to pivot.
✅ Use online calculators and tools
Sites like Moneysmart.gov.au and ATO.gov.au offer useful estimators for property costs, deductions, and future projections. Modelling different outcomes can help you plan more realistically.
✅ Create a personal readiness checklist:
Do I have enough income to cover losses for at least 12–24 months?
Have I factored in interest rate increases and repairs?
Am I investing in a strong-growth location with rental demand?
Have I considered long-term implications, not just short-term tax wins?
Do I have expert support (broker, accountant, adviser)?
Am I emotionally and financially ready to take on investment risk?
Do I have a clear endgame, whether that’s holding, selling, or leveraging equity?
Need Help Deciding? Speak to a Broker Who Understands Your Goals
Negative gearing can be a powerful part of your investment journey. But it’s only suitable if it fits your financial life and property strategy.
If you’re not sure where to begin, speaking with an experienced mortgage broker could help you move forward with more clarity and confidence. They’ll guide you through your options, stress-test your cashflow, and help you decide if this path is suitable for your situation.
Book a chat today and take the next step with confidence.
Frequently Asked Questions (FAQs)
Yes, but only under certain conditions. Negative gearing is often most effective when paired with strong long-term capital growth, so if property prices in your chosen area are stagnant, the benefits can diminish.
However, if the property has solid fundamentals, such as being in a high-demand rental area, close to major infrastructure, or showing future growth potential, it may still prove worthwhile over a longer time frame. Just be aware that without capital gains, you’re relying on tax deductions to offset ongoing losses, which may not be sustainable forever. It’s important to run scenarios based on modest growth projections, not just optimistic ones.
It can be. Rising interest rates directly increase your holding costs, which can deepen your cashflow shortfall on a negatively geared property.
If you’re already tight on monthly expenses, further rate hikes could put pressure on your finances. That’s why it’s critical to stress-test your investment using higher rate assumptions, say 1.5 to 2% above current rates, before you commit.
Consider using tools like Moneysmart’s mortgage calculator or speaking to a broker who can help you model realistic repayment scenarios and build in buffers to manage unexpected cost increases.
There’s no current legislation to remove negative gearing in Australia. However, the possibility has been debated before, most notably during the 2016 and 2019 federal elections. While no immediate changes are on the table, it’s wise to be cautious.
Always treat negative gearing as a “bonus” rather than the backbone of your strategy. If you’re buying an investment property today, make sure the numbers stack up without relying solely on tax offsets. Structuring your purchase to remain viable under different policy settings will help protect you from future shifts in legislation.
Focusing too much on tax savings and not enough on property quality. Many first-time investors buy a property purely for the potential deductions, without considering growth drivers, rental demand, or maintenance costs. This can lead to poor-performing investments that drain cash and never deliver long-term gains.
A smarter approach is to start with the fundamentals, such as location, tenant appeal, and future infrastructure, and treat tax benefits as the cherry on top, not the cake itself. A good mortgage broker or investment-savvy accountant can help you see the full picture before committing.
Start by asking: how comfortable am I with short-term losses in exchange for long-term gains? Negative gearing isn’t just about spreadsheets, it’s also about mindset. If the idea of your investment costing you money each month makes you uneasy, or if you don’t have a stable income or a financial buffer, it might not be the right time.
On the other hand, if you have strong cashflow, a long-term view, and a clear growth plan, negative gearing could be a suitable strategy. It’s also worth considering how much time and headspace you’re willing to dedicate to managing the property and staying on top of market shifts. A personal readiness check is just as important as the financial one.
