by Sanjeev Sah | Oct 29, 2024 | Market Updates

While positive gearing is the holy grail for many property investors, the reality is that negatively geared properties are fairly common.  

A negatively geared property is one that you spend more on than you’re earning in rent. And the biggest property expense is interest rates. The share of negatively geared properties tends to shift as rates fluctuate.  

The latest available Australian Taxation Office data (see graph below) shows that in the 2021-22 period, interest expenses took around 30% of the gross rent investors earned. This was at a time when the cash rate was at a record low (0.10%).  

Compare that to a decade ago (2012-13), when the cash rate was higher (2.50%). Here, interest took around 60% of rent earned. Add in all other expenses, and it’s clear why making a profit on an investment property can sometimes be challenging.   

So, you may question if it’s worthwhile holding a negatively geared property. In my opinion, yes, it can be. For one, there’s a potential tax benefit. You can deduct the loss you make on an investment property from your annual taxable income.   

And second, gearing isn’t the only benchmark to consider. If your property has a good rental yield and solid growth potential, it’s absolutely worth investing in.