Positive Gearing Is Not a Property Strategy (Most People Get This Wrong)

I was chatting with a lovely couple this morning.

They own an investment property and are looking to buy property number 2, so we got into the topic of property investing strategy.

They hit me with the, “Our strategy is, or was, positive gearing.”

I winced.

They laughed a bit, then admitted, “Well… we were positively geared at a 3 percent interest rate. Now, at 6.5 percent, we’re actually negatively geared.”

“Right,” I said. “That’s the thing. Positive gearing is not a strategy. Neither is negative gearing.”

They looked puzzled, so I broke it down.

“Positive gearing is just when your rental income exceeds expenses, so you’re making a profit.

Negative gearing is the opposite, expenses are higher than rental income, so you're running at a loss.”

I could see the cogs turning, so I went on.

“Gearing is just a label slapped on by the numbers. It doesn’t actually drive the strategy, your goals do.”

I explained...

"Want growth? Focus on assets primed to appreciate over time."

"Want cash flow? Structure your portfolio for consistent income, regardless of rate hikes."

The lesson here is, forget “positive” or “negative” as a plan. They’re just by-products.

Focus on building a portfolio that works in any environment.

A lot of investors misunderstand gearing…

because it gets discussed constantly in Australia, especially around tax time.

As a buyer’s agent and someone who has built a portfolio of my own, I see this confusion all the time.

Gearing simply reflects how the numbers fall at a given point in time. It changes as interest rates change, rents change or expenses shift.

A real strategy is built on long term goals, risk tolerance, income needs and the type of asset that will deliver those outcomes.

When investors learn to separate labels from strategy, their decision making improves significantly.

Author

Written by JP Ghabriel

Founder and Buyer’s Agent at Investr

7.2M personal portfolio

50 plus client purchases

Data-driven, fundamentals-first property investing