What Is a Negative Gearing Investment Property?

Negative gearing investment property schemes promise a lot. Specifically, they promise what seems to be a magic combination of low risk and high returns for those that put their money into them. Certainly, in the right conditions, they have the potential to eliminate some of the dangers surrounding putting your money into the housing market. Yet critics like to point out that the schemes are inherently weak in times of contraction in the housing market, so who is right, and is this approach to investment a good one?

The point of approaches based on negative gearing is to reduce the risks involved when the income from an investment property fails to cover the interest on the loan you have taken out on it. There are two elements that can be involved.

In the short term, that can be fine. You simply wait, prices pick up again, and everything is fine. It can be difficult to hang on if a dip in prices lasts though, and you could find yourself forced to sell property at the bottom of a housing trough, simply because you cannot afford to wait any longer. If that happens, you could face a substantial loss.

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