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Negative gearing is the act of borrowing money to buy an asset which may or may not later earn the borrower some tax advantages.

It has its own advantages and disadvantages. It offers the borrower tax advantages in the event of his investment making a loss and the promise of long term gains in the form of capital appreciation, thus presenting the borrower the mouth-watering situation of saving tax as well as making money.

Many countries in the world exempt some taxes citing deduction of negative gearing losses as the reason. However, as always, the truth is often overlooked as one can be tempted by the win-win situation.

There is a huge risk in negative gearing as the losses associated with it can be huge. Thus, the borrower should always be at hand to withstand the shortfall and to fund the negative flow of cash. It is proven money making strategy, but keeping in mind the risks involved, it’s not a very reliable one.