What is negative gearing?

The term ‘gearing’ refers to borrowing money to buy an asset. In property circles, it means taking out a home loan to buy real estate.

There can be positive gearing, where the rental income an owner gets from a property exceeds the interest repayments, property maintenance costs and other expenses they pay on it. Negative gearing is the opposite, where the rental income is less than the cost of the mortgage, property maintenance and other costs. In short, positive gearing refers to making a profit out of your investment property, while negative gearing means you’re making a loss and are eligible for some tax concessions.

Positive gearing isn’t always possible right away, which is why some investors turn to negative gearing.