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How to decide if negative gearing will pay off

Jonathan Philpot

Going into debt or putting in place a negative gearing strategy is a popular wealth-building strategy for many Australians. However, some experts believe there are other options long-term investors should weigh up.

Negative gearing, particularly with property, can be an effective strategy for investors if the value of the property appreciates enough over time to deliver a strong capital gain.

However, as wealth management partner at HLB Mann Judd, Jonathan Philpot, points out, this isn’t always the case, as many investors have experienced during current market freefalls.

For Mr Philpot, these investors with long-term aspirations could be exploring other tax-effective vehicles at their disposal, like superannuation.


“Using gearing to build wealth can be risky, and negative gearing into property carries a higher risk without a guarantee of a greater return opportunity.

“A negative gearing strategy can pay off... but this isn’t always the outcome. And the capital costs of running and maintaining an investment property can be high,” said Mr Philpot.

Considerations for super savings

Given the restricted concessional contribution limits of $25,000 a year that applies, investors cannot deposit a large sum into super.

Rather, investors should view this as a long play, as they would with property investment.

“One smart strategy is to begin this from the age of 40, with the aim of building a super fund up to the $1.6 million balance cap limit,” said Mr Philpot.

Myth busting

Many Australians view superannuation as an illiquid asset, as it is locked away until retirement.

However, Mr Philpot reminds investors that by comparison, property also doesn’t have a high liquidity value.

“Property is an illiquid asset and investors can only access the capital upon the sale of that property,” he said.

“The income generated from rental is generally low – often at around 3 per cent per annum or less – and this income is often being utilised to meet loan repayments,” he said.

“For a property investment to achieve its potential, it should be at least a 10-year holding, meaning the wealth invested in a property can also be viewed as locked away,” he said.

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How to decide if negative gearing will pay off
Jonathan Philpot
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Cameron Micallef

Cameron Micallef is a journalist at Nest Egg, writing primarily about personal wealth and economic markets. 

Prior to this, Cameron worked for Australian Associated Press. He graduated from the University of Wollongong with a double degree in communications and commerce.

You can contact him on: This email address is being protected from spambots. You need JavaScript enabled to view it.

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Anonymous - This is silly. Most countries would think 3 per cent was fantastically low. Further, who measures how much economic activity is being destroyed by.......
Anonymous - What a load of rot! What is he comparing the detriment to, and how much does the GFC effects factor into his farcical calculations? ....
Anonymous - In other words, sack advisers and cut costs. It's the financial version of #me too movement.....
Anonymous - If that's after tax pay then I'm screwed.....