PROPERTY

Ask Paul: Why would anyone want to negatively gear a rental?

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Q. I am 25 and looking to begin investing in property but am failing to understand why you would want to negatively gear a rental versus having it positively geared to aid paying it off quicker.

Are the tax benefits truly that beneficial over paying off the debt sooner and increasing the portfolio sooner? - Jake

A. You are right, Jake. Positively geared property, meaning it makes more in rental than you pay in interest and costs, is a great idea.

ask paul clitheroe negatively gear

But it is not just about income; a key issue is capital gain. This tends to come in close to city and public transport locations. Yields are usually low on great property but I would argue the potential gains are higher.

So forget tax for a minute. This is about making good investment decisions.

If you can find a really well-located property in a near-city location that is positively geared, good luck to you. But I think you will find the market is pretty rational and very competitive.

Great property will tend to be low yielding. High-yield properties will be more often in more distant locations. They offer greater yield but poorer capital gain. I'd always go for the best-located property.

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Paul Clitheroe AM is the founder of Money and serves as the publication's editorial adviser. One of Australia's most trusted personal finance experts, Paul has spent decades helping Australians build wealth, manage debt and make smarter money decisions. He is widely known for host­ing the Money TV program and authoring best-selling personal finance books. Since launching Money in 1999, he has played a leading role in delivering practical, independent financial guidance to Australians. Paul is chair of InvestSMART Financial Services. He was the founding chair of Ecstra Foundation, a national not-for-profit focused on improving financial wellbeing, from 2018 to 2026, and led the Australian Government's Financial Literacy Board and Financial Literacy Australia from 2004 to 2019. In academia, Paul is chair in financial literacy at Macquarie University, where he is also a Professor in the School of Business and Economics. Ask Paul your money question. Due to volume, Paul cannot respond to questions posted in the comments section.