Positive Gearing Analysis

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.

8 thoughts on “Positive Gearing Analysis”

  1. Anyone who can find a property in Melbourne for $65,000 has a license to print money no matter how it is financed…

  2. It’s an old spreadsheet. :)

    I think at the time, I was involved in a discussion about the merits of positively-geared property in areas outside of Melbourne, such as Geelong and Bendigo.

  3. Thanks for the spreadsheet Andrew. Even though it’s old, it is still handy to separate the duds from the potential properties. At 25 I am just starting to get into the investing game and I need all the help I can get!

  4. Graham – these days it’s very difficult (although not impossible) to find positive cashflow properties.

    I don’t recall a time where it was possible to buy these properties in Melbourne though.

    Areas like Wendouree West in Ballarat, Traralgon, Moe, Morwell, Corio in Geelong as well as Tokoroa, Dunedin, Invercargill etc in New Zealand – these areas all had positive cashflow properties at one stage (gone now I believe as a result of rises in the property markets in these areas).

    But the reason they were positive cashflow was because few investors wanted to buy them. Some of these areas have very high levels of unemployment.

    The people I know who are investing in positive cashflow real estate these days are buying, improving, and either holding or selling for a quick profit.

    This means development, renovations, etc.

    I hope this helps


  5. Hi Andrew,
    What happens in yr 21, it is linked back to year 15?????? Maybe its my openoffice or something??


  6. Brett,

    You’re right. The contents of cells B38 and C38 on each of the sheets was wrong. It doesn’t make any difference to the 20Yr calculations (just the 25Yr ones).

    For what it’s worth, I’ve uploaded a corrected version of the sheet.

  7. Note: The formula applies tax for losses (negative gearing) but does not apply tax when income>costs (positive gear)? Shouldn’t treatment of tax be consistent?
    Refer E18 in “positive gearing” tab and all others too

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