Negative gearing vs positive gearing for Airbnb: which is better?

If you’re involved in real estate investment, you’ll have heard of a few different investment strategies, including negative and positive gearing. These are especially relevant for Airbnb property owners. Both approaches come with their unique pros and cons, so it’s important all property investors understand their impacts.

Negative gearing vs positive gearing for Airbnbs

How does negative gearing work?

Negative gearing occurs when the rental income from a property is less than its operational expenses, including mortgage, maintenance, and taxes. This scenario is often seen as a long-term investment strategy, relying on the property's value appreciation over time. While negative gearing presents immediate cash flow challenges, it can offer significant tax deductions and potential for capital growth in the long run​​​​.

Pros of negative gearing

• Tax Benefits: One of the primary attractions of negative gearing is the potential for tax deductions, helping to mitigate the impact of rental shortfalls​​.
• Tenant Attraction: Properties under negative gearing often have lower weekly rental rates, increasing their appeal to tenants and ensuring consistent occupancy​​.
• Capital Growth: Focused on long-term appreciation, these properties can yield substantial returns when sold, particularly in prime locations​​.

Cons of negative gearing

• Financial Risk: The need to cover cash shortfalls requires substantial financial resilience, posing a higher risk, especially in unstable market conditions​​.
• Long-term Focus: Investors need patience and a long-term perspective, as the benefits of negative gearing accrue over time, often requiring years to realise​​.

How does positive gearing work?

In contrast, positive gearing happens when a property's rental income exceeds its expenses. This approach is known for generating immediate cash flow and less reliance on property appreciation. Positive gearing is often associated with properties in high-demand rental markets and can provide a steady source of income​​​​.

Pros of positive gearing

• Immediate Profit: Properties under positive gearing generate surplus income, offering immediate financial benefits and the potential to reinvest or reduce debts​​.
• Lower Risk: With a stable income stream, these properties present a lower financial risk and can provide a safety net in uncertain economic times​​.

Cons of positive gearing

• Tax Implications: The additional income is taxable, which could affect your overall tax liability​​.
• Dependent on Market Conditions: These properties can be sensitive to market fluctuations, affecting their rental income potential​​.

Which one is better for your Airbnb, negative gearing or positive gearing?

For Airbnb property owners, the choice between negative and positive gearing has unique implications. Negative gearing can be particularly relevant given the variable nature of Airbnb income. With fluctuating rental rates and occupancy levels, expenses might occasionally outpace income, leading to a temporarily negative-geared scenario. However, the flexibility in pricing and the potential for high-demand periods can offset these periods, making Airbnb properties potentially lucrative in the long term. 

On the flip side, positive gearing is achievable in high-demand areas where Airbnb properties can command premium rates, ensuring a steady and robust income that surpasses expenses. This scenario is ideal for owners seeking immediate cash flow from their Airbnb rentals. In both cases, the dynamic nature of the short-term rental market necessitates a more active management approach to maximise returns and minimise risks.

How Hometime can help with your Airbnb management

Understanding the differences between negative gearing vs positive gearing, along with managing these investment strategies can be complex. At Hometime, we use our expertise in short-term rental management to streamline Airbnb management tasks and help you determine strategies such as whether your property is negatively or positively geared. By partnering with us, you ensure that your investment aligns with your financial goals while minimising operational burdens.

Our services include:

• Property styling and photography
• Listing optimisation
• Cleaning services
• Revenue and booking management
• Guest management
• Property maintenance
• Access to Hometime's all-in-one property management software

Whether you choose negative or positive gearing for your Airbnb property depends on your financial goals, risk tolerance, and investment timeline. Both strategies have their merits and challenges, and the right choice varies per individual investor.

List your home on Hometime and get a personalised strategy for your Airbnb property.