Property News & Investing

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Top performing suburbs by 12 month growth

Suburb Property Type Median Price 12 Month Growth
Berrambool 2548, NSW House $2,730,000   86%
Adventure Bay 7150, TAS House $536,000   78%
Hamilton 7140, TAS House $615,000   76%
Forrestdale 6112, WA House $1,694,000   76%
Dianella 6059, WA Unit $1,447,000   74%
Dianella 6059, WA Unit $1,447,000   74%
Bellamack 0832, NT House $2,275,000   74%
Bellamack 0832, NT House $2,275,000   74%
Boat Harbour Beach 7321, TAS Unit $375,000   73%
Ashby Heights 2463, NSW House $1,453,000   70%

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Helpful information

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Suppose you bought a property for $600,000 by taking out a $500,000 loan with an interest rate of 7%. This means that the interest payments are $35,000 annually.

Meanwhile, you are renting out the investment property for $550 a week, which is $28,600 over the whole year.

Since you are paying $35,000 in interest but only earning $28,600 in rental income, you have a net loss of $6,400. This means that you are negatively geared. You can offset the $6,400 against your taxable income to pay less tax.

A year later your property is valued at $648,000 as property prices have risen 8%. Therefore even though you had a loss of $6,400, you are $41,600 better off than the year before as the capital gain is much higher than loss you made on repayments.

 

Negative gearing involves borrowing money (also known as gearing or leverage) to purchase an investment property. Next, the rental payments from the investment property need to be less than the interest costs and general property upkeep. These losses can be deducted from the investor’s taxable income, reducing the amount of tax the investor needs to pay. As a result of the loss between rental payments and interest payments and other property expenses, this is known as negative gearing. If the opposite occurred, and rental payment was above interest and other investment property related expenditure, the investment would be positively geared.

Apart from tax benefits, negative gearing becomes profitable if the investment property is sold at a profit or capital gain. Here investors are banking on selling the property for more than they bought it for, also known as capital gains in order to make a profit. If the property prices rise, the total value of the asset rises and the investor has made money.

Investors need to consider whether or not they have the funds to be financially sound whilst incurring the losses for negative gearing. Interest rates also need to be monitored as well. Investors must ensure they have other sources of income to cover the expenses in the meantime.

Most investors use negative gearing for the tax deductions available. Negative gearing losses can be used to offset your taxable income, thus reducing the amount of tax you need to pay. Investors also hope that when the property is eventually sold they will receive capital gains by selling the property for higher than they bought it.

Gearing is simply when you borrow money to invest in an asset. When people are talking about negative gearing in the media, they are usually referring to the practice of borrowing to purchase an investment property. Negative gearing means that the rental return of the investment property is less than the interest payments and other property expenses. Negative gearing losses can be used to reduce your tax bill by offsetting the loss you have on your investment property (the difference between your interest payments and other property expenses and the rental income against your taxable income). 

If owned outright, property can generate return from capital gains and/or through rent. If you have bought a REIT you will receive distributions of rental income or dividends depending on the company’s structure.
Negative gearing occurs when the expenses of a residential property (interest, depreciation, etc.) are greater than the income (i.e. rent) received. This creates a loss which can be used to offset income tax.
The four main categories of property are residential property, commercial property, real estate investment trusts and property syndicates.