Gearing is the use of debt to fund an investment. A geared property investor borrows a portion of the purchase price, using the rental income and, ideally, capital growth over time to generate a return on their equity.
Negative gearing: the property's income (rent) falls short of its holding costs (interest, rates, insurance, management fees, maintenance). The shortfall is a tax loss and, in Australia, can be offset against other assessable income under the income tax legislation. Negative gearing is a deliberate strategy for investors who expect capital growth to more than offset the income shortfall over their investment horizon.
Positive gearing: the property's rental income exceeds its holding costs, producing a taxable surplus. Positive gearing is more common in higher-yield markets (regional, commercial) or at lower leverage levels where the interest bill is manageable against the rent received.
For private credit underwriting, gearing is measured primarily by LVR (loan amount relative to property value) and by ICR or DSCR (income coverage of the interest or debt service obligation). High gearing increases the risk of a margin call or forced sale if the asset value falls below the lender's LVR cap or if income falls below the ICR threshold. Lower gearing provides more buffer on both sides.
Unlike a share portfolio, where gearing is typically measured at the portfolio level, property gearing is almost always assessed on a per-asset basis, since each property is separately secured. Cross-collateralisation allows a portfolio-level view, but it is a deliberate structuring choice rather than the standard approach.