Glossary of useful terms and definitions
Where the income from an investment property is insufficient to meet the interest costs of the loan used to fund the investment property.
The term ‘gearing’ refers to borrowing money for investment purposes, using existing assets as security for the loan. Gearing can be positive, neutral or negative, and it’s this last one that is most common when it comes to property investment. Negative gearing occurs when the costs of borrowing to purchase an investment property exceed the income you receive from your investment. So if your interest costs on the investment loan amounted to $25,000 p.a. and the rental return was $20,000 p.a. you would be negatively geared to the tune of $5,000 p.a.
Read our article 'Negative gearing and its positive results' in the Resource Centre.
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