A rental property is negatively geared when it is purchased with borrowed funds and the net rental income, after deducting other expenses, is less than the interest on the borrowings.

That is: A loss is made each year.

The overall taxation result of a negatively geared property is that a net rental loss arises. In this case, you may be able to claim a deduction for the full amount of rental expenses against your rental

property and other income—such as salary, wages or business income.

The capital value of the property is important for negative gearing, as the investor will be relying on a strong long term gain to make the loss worth while over the time of owning the property.

The aim here is two fold:

• To obtain a tax benefit
• To obtain a strong capital gain on the property when it is sold

How Does the Real Estate Market Work?

The real estate market is controlled by a number of forces. Interest rates, the economy and unemployment rates. It is often finally controlled by buyers and sellers. In a high price market there are many buyers and not enough property so sellers control the price and can ask higher than normal – when there are a few buyers and lots of properties, buyers control the price and will not always pay what the seller wants. Therefore if a seller must sell then they may sell at the buyers price and the market price drops.