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Margot B.
Margot B.
Zetland, NSW

I am thinking of buying my first investment property. Would you recommend a negative gearing strategy and have the loan interest only or should I go principal and interest and look to create more equity?

12 months ago


Hi Margot

Without giving tax advice; you can technically pay principle and interest and still have a property negatively geared. It all comes down to the cost to run/ maintain the property compared to the rent received. Your biggest expense is the interest paid.

In relation to if you should go Principle & Interest or Interest Only... Paying down the principle will prepare you for any potential rate rises in the future. If you opt for interest only then your principle does not change for the interest only period. If rates rise during this time then you may be placed into a situation where you can no longer afford the loan.

Best to get the advice of an accountant or financial planner in relation to the structure of your loan.

I will be more than happy to assist you with finding the right home loan for your needs.

Sam Zammit
South West Lending Solutions
1800 824 325 or 0414 727 308

Hi Margot,
Great question. It depends on your age and strategy. Are you looking for cash flow or capital growth?
For younger clients with high incomes sometimes it is better to look for a high growth property to secure the capital growth. To do this you would use interest only to reduce your holding costs over time and then release the equity in the future for the next purchase.
For older clients were the property is positively geared we sometime recommend converting to principle and interest as you mention to increase the equity once they retire and it is their sole source of income.

Hope this helps, happy to provide more guidance if you need it

regards Awesome Albert

Hello Margot,

as Sam and Awesome Albert have said: "it depends". So you need to get in front of someone and go through all the various issues and make a decision.

I will say this: if you are interest only for 10 years you still owe the whole amount when you sell. I know it is painfully obvious, but it is a huge factor.

And the other comment I would make is about the relative merits of negative gearing:

In order to get a tax benefit from negative gearing, you need to spend more than you earn (again really obvious I know but please bear with me)

LEts say your net loss on the property is $10,000.
Lets also say your tax rate is 32.5%
the tax benefit is $3250. yippee!!!
but the OTHER $6750 is GOOOONE !!!! never to return. bye bye.

do if your property doesnt increase in value by at least that amount, you are actually going backwards......

if your property doenst lose any money, then you have the $10,000 in your pocket, right?? But no big tax refund either.....but you are actually $6750 BETTER off but not bleeding $10,000 in the first place.

Im not saying dont get into a negatively geared property.
I AM saying do your sums and take into account ALL the factors to see whether something is a "good" investment.

good luck


As Brenden suggests you should do your numbers, what he didn't say as well is - you should get the accountant to do his numbers and also get a finance person to do their numbers and then get your INVESTMENT TEAM together so you can establish where the similarities are, and where the discrepancies are so you can learn more PLUS make a well informed decision based on a number of professional view points - Rather than just - SPEAK TO ONE or the OTHER. . . Build the team around you that can help you get to the goal you desire.

Thanks Margot for allowing us to contribute to your deliberations.

Hi Margot
Ok, I think it’s a variety of factors that may effect your decision on which way to go
1. Proposed rental return for the purchase
2. Secured interest rate from the bank

The above 2 can have a considerable affect on your decision and when I deal with my clients we always got through in details all the options to see why is comfortable and what works within your budget

Happy to chat further if you need
Mark 😁

Hi Margot,
This totally depends on the rest of your financial situation as well as your age, your appetite for risk and investment goals.
Let’s say you want to invest for capital growth over the long term. It is likely that the highest growth opportunities exist in well regarded, well serviced areas. Properties bought in these areas are typically higher priced and have low rental yields. It is probable that you would be negatively geared on these properties.
If you want to invest for cash flow, you would need to purchase a lower priced property that has a higher rental yield and would potentially be positively geared.
Please discuss with your accountant and adviser but the ideal property in my opinion will meet the market for capital growth whilst providing you with positive cash flow from day one.
The only people who lose money in property are those that are forced to sell. Make sure it is something you can comfortably afford even if things turn a little for you or for the market.
Great to see you thinking of your future
Best of luck with everything
Kind regards

All of the responses so far have been extremely insightful, but have all missed one vital point and that is "Why do you think you want to buy an investment property"?
There are so many other investment avenues that may actually suit you better, but how would you know?
The answer to that is, "talk to a licensed Financial Planner". Not just one but I recommend 3.
Just like getting a quote to have repairs done to your car.
Meet these people, listen to what they say, determine if you feel they are a good fit, and select the one you feel most comfortable with. Pay their fee and follow their advice - which might be "buy an investment property".
There is so much more to buying an investment property than just deciding on P & I or I/O.
Best of luck with whatever you decide.

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