Negative gearing
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Negative gearing is a form of financial leverage where an investor borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan. The situation when the income does cover the interest is called positive gearing; it may create a source of passive income.
A negative gearing strategy can only make a profit if the asset rises in value and creates a future capital gain to cover the shortfall between the income and interest suffered. The investor must also be able to fund that shortfall until the asset is sold. The tax treatment of interest expenses and future gain will affect the investor's final return. Tax rules vary from country to country.
[edit] See also
- Debt
- Financial engineering
- Leveraged buyout
- Margin (finance)
- Return on margin
- Rent seeking
- Robert Kiyosaki has views on considering as assets as only those investments with positive net cash flow.
[edit] External links
- Negative Gearing Issue Sheet for the Australian federal election, 2004
- Australian Taxation Office Rental Properties Guide 2005, product NAT 1729-6.2005
- Real Estate Institute of Australia Policy Statement on Negative Gearing, as of October 2005
- Negative Gearing—A Commentary on how it works and who it is suited to