what is negative gearing?


I just can’t understand it to save my life.

In: Engineering

You want to buy a business.

You get a loan out that costs you x amount a month in interest so you can buy the business.

You buy the business and are now making income from that business, but the income is less than the cost the interest on the loan is costing you each month, so you’re making a net loss each month. That’s negative gearing.

The idea is you’re going to turn the business around, and end up selling it for enough that it offsets all the loss you’ve made during the whole setup and you end up making a profit.