Currently reading up on real estate. I’ve heard the term ‘gearing’ a few times but can’t seem to understand the gist of it
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It refers to the cash-flow on a property.
In a positively geared property, the money you receive from operating the building is more than the expenses you have to pay by owning the building.
In a negatively geared building, the money you make is less than the expenses you pay.
Positive gearing usually applies to buildings where the owner rents space. Negative gearing usually applies to buildings that the owner has in order to either live in, or make money off of through equity and appreciation (i.e. the price they sell for is more than the sum of what they bought it for and the expenses they paid while owning it).
I should add that gearing is short term. A positively geared building means you are profiting now, and a negative geared building means you are taking losses now. But in the long term, you can still profit significantly off of a negatively geared building. Like if you sell your home after 20 years in a very high housing market.
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