The economy is like most other things in this world in that very little is new or never seen before. Its just like fashion and trends, they have a habit of repeating over the years.

When I started in commercial industrial real estate, interest rates were at 17% and yields on good industrial property were at 13%. Did the buying of investment properties stop back then? NO, I was still selling, different methods to now, however people bought them without the expectation of positive gearing.

So, even though the bank interest rates are now half of what they were, there is a growing disparity between the yield an owner will sell for and the interest a bank will charge. Back then you could call up your bank manager, who knew your financial position intimately, and get a yay or a nay on the spot. If it was a nay then you would go in to see him (they were mostly him’s then) and argue the merits of your acquisition. Oh, for the old days.

Those times of friendly bank managers have gone but the Federal Government still allows negative gearing on property, and it might be time to dust off the textbooks on how to make money by negative gearing property.

So, what is negative gearing? It is a financial strategy. It occurs when the costs of owning an investment property (such as interest on the mortgage, maintenance, and other expenses) exceed the income generated by that property (e.g., rent). In other words, the property is operating at a loss. This loss can also include the write-down in value of the assets the property through depreciation.

The key aspect of negative gearing is that the investor can deduct this loss from their other taxable income, such as their salary. This can reduce their overall tax bill. Knowing the value of the property will appreciate over time. They accept short-term losses in the hope of making a capital gain when they eventually sell the property.

Back then the go to books were Building Wealth Through Investment Property by Jan Somers and Paul Clitheroe’s Making Money. The philosophies promoted by these books in the 80’s, 90’s and 2000’s have not changed and it may be time to dust off their covers as yield expectations and interest rates fluctuate and widen.