Create Wealth by Gearing Up



Gearing is where you borrow money to invest. As already mentioned, it is best to clear all your debt before looking at investment.

However, there will arise situations where the investment is a good one and it is necessary to borrow a small amount to make the deal work. The borrowing may be for property or shares.

Gearing allows you to increase your investment and potentially obtain a higher return. On the downside, however, if the investment does not pay off you stand to lose a lot more. Negative gearing comes about when the interest you are paying on your borrowing is greater than the income from your investment (for example, from a rental property). You can claim the loss or difference against your taxation and write it off as a deduction against other income.

Negative gearing is not necessarily the best investment strategy. Even though you get a tax break it is still costing you money. That is, you may be saving yourself 25 cents in the dollar, but you have to spend one dollar to achieve that. People look at negative gearing because they calculate that they will be able to sell the investment for more than they b...

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