Negative gearing is the common practice among property investors. In simple terms, negative gearing is when an investor borrows money to invest, and the income from that investment is less than the cost of owning and managing the investment.

For instance, a person may purchase an investment property and his mortgage is $500 per week. If his rental rate is $400 per week, then that investor is losing $100 per week. That $100 loss will be eligible for tax breaks. The rationale behind this is that in a decade or so, the value of your property increases and you’ve accumulated tax breaks in all those years thereby negating the losses you’ve incurred.

If that sounds complicated, that’s because it is. Somehow, when people hear something complicated, they seem to just nod their heads and trust the finance expert. After all, the numbers presented with all the fancy calculations can’t be wrong – right?

However, there are times when common sense should prevail over fancy Math. If there’s one common complaint people make year after year, it’s that everything seems to be getting more and more expensive. With cost of living rising, can you truly afford to lose money in your investment on purpose just to avail of a yearly tax break?

People say that a good investment is based on its rate of return. A negatively geared property yields a negative return. Despite that, many people still think that that is a good thing because of the tax breaks. But ask yourself this: Would life be easier if you were earning $100 extra each week or losing $100 each week? In a practical sense, making money weekly is always better than losing money weekly. Additionally, is not earning money the main goal when you purchase an investment property?

Why take a hit for 52 weeks just to get that one annual tax break? Besides, that annual tax break ends up paying for your previous losses rather than going to your savings anyway.

Keep in mind that the average weekly losses in a negatively geared property can amount up to $50 – $100 each week. So if you purchased five investment properties, which are all negatively geared, then your potential losses will be up to $500 each week. That’s a lot of money to burn.

Won’t it be more sensible to purchase an investment property makes you money now rather than a year from now? If your investment property is positively geared, then you won’t have to worry about the cost to sustain that property. The property takes care of itself and brings in money to your pocket each week. What’s not to like?

If you are looking to invest in a cash flow positive property, but are not sure on where to start, register for our ‘Prepare Your Wealthy Future’ seminar at www.pwf.com.au/prepare-your-wealthy-future-seminars.