There are always debates about what is better: positively or negatively gearing a property investment. I don’t think you can conclude one is always better, but perhaps this analysis will be useful to others.
I put together three copies of the same spreadsheet under different scenarios. A property worth $65,000 is being considered, with a loan being taken out to cover the non-cash components at 8% interest-only.
The first scenario is a typical positively geared one – a large enough deposit is being taken out to return a positive return from year 1, given a rental stream of $100 / wk. The second scenario is a typical negatively geared one – a 10% deposit is used, and as a result the initial returns are negative, and are tax-deductable, for a few years until the property “turns positive”. The last scenario is similar to the previous two, except the rental stream is $125 / wk while the capital growth is correspondingly lower, and gives much better returns that either of the other scenarios.
Download the original Excel spreadsheet.