Worried about buying a home with interest rates on the rise? It might seem a bit intimidating, but there are some major benefits still to consider that make it worthwhile, including negative gearing, and let’s break them down:

1. Capital Growth:

If you are looking to build assets whether property, shares and/or superannuation, you should never try and pick the best time to buy, but more buy when you are ready and have a long-term time frame to smooth out the highs and lows. As if your property increased in value over time, for example it averaged a growth of 7% per annum, a $400,000 property from a decade ago would now be worth around $800,000 even with the highs and lows.

2. Less Competition:

When rates rise, some people might step back from considering property, which means less competition. Less competition means an easier time finding a property and maybe even scoring a better deal.

3. Discount Opportunities:

Higher interest rates can put pressure on property prices. Owners looking to sell might be willing to cut you a deal, giving you the chance to grab a property at a discount. Imagine paying $550,000 instead of the full $600,000.

4. Negative gearing helps provide a tax deduction

Negative gearing simply means when you borrow to invest, as for example a bank investment loan, your property is ‘geared’. ‘Negative gearing’ happens when the costs of owning a rental property exceed the rent returns you earn. This negative amount each month is tax deductible.

Why is this a good thing? It means that your renter is helping you pay off the loan and if the rent doesn’t cover all your costs and leaves you with a negative difference, it is deductible and helps give you some tax relief at tax time.  I should say that only the interest on your property loan is deductible, not the principal.

And finally, the best reason to buy property:

5. Building a Passive income stream:

While in the beginning you are trying to pay down the loan, after a few years, with the mortgage reducing, and the rent you charge increasing, you will start to see positive cashflow into your bank account. To the point your property is working in providing an alternate income stream to your job and ultimately replacing your job, if wanting to, as you now have financial security for you and your family.

So in summary, sure, buying property comes with risks, especially with interest rates being high presently, but they will come down again at some point and  in the meantime if you weigh up the benefits – capital growth, potential discounts, and long-term passive income stream – they tend to tip the scales in favour of making that property purchase. Just make sure you do your homework and maybe have a chat with a property advocate, financial adviser or money coach to make sure it’s the right move for you. Happy house hunting!


Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich