A word of caution with negative gearing is essential here. Do keep in mind that you cannot make money by losing money. With an eye on their tax bill many people are more than willing to negatively gear thinking that this in itself will make them wealthy. In times of high inflation property values increase greatly, in times of low inflation the low real return of real estate becomes more obvious, a paltry few percent after inflation. If the real return on the investment, plus inflation does not exceed the losses of negative gearing, you simply are not making money. In low inflation times real estate investment becomes very much more difficult, the returns inclusive of inflation are dismal, and the mortgage is still strong. Short term cashflow improvements can be substantial with new homes, especially with plant (curtains, carpets etc.) being fully depreciable over their first five years, people on high marginal tax rates can do very well out of the tax savings there, even if the capital gain is not as high as might be hoped, however it certainly pays to know a wide range of investment options so as to be able to move your money where it will enjoy the greatest gains for the present conditions.

Negative gearing is a great way to get into a purchase, claiming all the right deductions and depreciating what you can can improve cashflow such that over the first few years of a purchase a negatively geared property can produce after tax cashflow benefits. This is where careful analysis comes in though, after the first few years when most deductions have been made it is vitally important that leverage is reduced so as to continue with after tax profits. Those people who are selling those silly real estate seminars claiming that you can make money by losing money just because real estate always appreciates are telling half-truths, they neglect to mention that real estate does not always reliably appreciate and that negative gearing exposes the investor to great risk. In times of high appreciation you can afford to take on larger leveraged investments than at other times, negative gearing is a tool that helps in real estate investment, don't let a real estate agent giving a seminar tell you that the technique is always going to work on every property, ultimately you need to look for properties that will produce positive cash flow in only a few years.

The assumption that real estate will appreciate is purely speculative, although this is by far the most common investment strategy used it is a dangerous one. Real estate timing is specific to an area, while values increase and decrease overall at a similar time, the timing varies from city to city and even suburb to suburb. Experiencing a capital gain over a relatively short time frame is highly unreliable unless proactive steps are made to improve the property value, such as sensible renovation. Improve your overall cashflow by reducing all personal debts first (including your own mortgage) and then pay for the mortgages for the investment properties. Debt is very useful but it is also very dangerous, remember that although the profits to be made in real estate can be vast, they are made gradually and with great short-term risk.

For an investment to make sense, it has to produce positive cashflow, this is why for an investor a new property often makes very good sense over an old one. You might like old houses because of their character, because they are cheaper or for many other reasons, if you do then go live in one, but do not invest in them. Newer properties are somewhat more expensive than old ones, but you can claim depreciation on them, making for an immediate cashflow benefit. There will be less repairs necessary on new properties and rental returns may be higher.