Generally, debt is considered to be “good debt” if it helps you purchase wealth building assets. Wealth building assets, of course, can mean investment properties. Investment property may appreciate in value over the longer term and investors can use the rental income from the property to help pay off the investment home loan. This is where negative and positive gearing can come into play For example, let’s say someone on a $100,000 salary purchases an investment property worth $600,000 using a loan, seeking to use the property to pay off their home loan of $500,000. The interest rate and maintenance cost comes to $550 dollars per week, but the property only produces $450 a week in rent income, meaning they have a loss of $100 per week and $5200 per year. This means they only have to pay tax on $94,800, saving around $2,000 on tax which can be put towards paying off the home loan. As the years go by, the property increases in value, in line with the Australian housing market’s average growth of 6.8% per annum (last 25 years) and after 10 years, the investor decides to sell. The property has seen a capital growth of $408,000 in that time ($40,800 per year) and this, paired with the yearly $2,000 dollar payments has allowed the investor to pay $428,000 on their loan in just 10 years. The Australian housing market, although declining, has grown at 6.8% per annum in the past 25 years. This means that the property will increase $40,800 every year. Housing typically grows at a rate of 3-5%, though in Australia in the past 25 years housing has grown at 6.8% per annum. However, Negative gearing is only going to work if there is capital gain. R – (M+I) < Capital gain