Summary & References

The tax benefit associated with negative gearing can also help an investor undertake a higher level of investment than might otherwise be possible.

However, there are risks with pursuing negative gearing as an investment strategy. Interest rates may rise and increase the cost of loan repayments. There is also a risk that the property may be vacant for extended periods, which will further increase the overall loss as there would be no rental income. The investor may not have the financial resources to absorb the losses while the property is negatively geared. Further, the property might not increase in value sufficiently to make an overall profit upon its sale, taking into account the losses made while the property was negatively geared.

 

References

Australian Taxation Office (ATO).