Fight Finance

(a) Buy an investment property with low expected future capital gains and high rental income, funded using a low proportion of debt (mortgage loan).

(b) Rent the investment property to a tenant;

(c) Negative gearing is achieved when the property investment’s annual taxable profit is negative, due to the loan’s interest expense being greater than the net rent (rental revenue less the renting expenses such as maintenance);

(d) Deduct the property’s income loss from the investor’s separate personal wage from labour. This means that the investor will pay less personal income tax than if they didn’t make the levered property investment;

(e) The investment property will be a positive-NPV investment if the capital gains are greater than the income losses on an after-tax, risk-adjusted, present-value basis.