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Negative Gearing or Positive Cash Flow?

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There's no easy answer to the much-debated question: do negatively geared or positive cash flow properties make the better investment choice?

There are many investors who swear by negative gearing, which is when the cost of the property, including interest on the loan used to buy it, outweigh the returns it generates. This loss can be claimed on tax, which is where the appeal of negative gearing lies.

Others strongly believe having a positive cash flow is a wiser choice because it means you have more income than expenses and cash in your pocket every week. This is achieved either through positive gearing – where your property's rent returns are high in proportion to the purchase price and cover all the expenses. Alternatively you can achieve a positive cash flow with a property when its outgoings (loan interest, body corporate fees etc) are lower than the income you earn through rent and tax deductions (from claiming expenses and depreciation).

The reason for the divide in opinion is that there is no shortage of successful investors who can vouch for one or other of the strategies or those who have even used a combination of both. Much of the success of property investment depends on individual choice, circumstance and goals, which means that while something works for one, it may not for the next.

Turn over the page to find out how you can determine which strategy works best for you.