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Determination of the Maximum Affordable Price for Negatively Geared Investments in Residential Property

Author/s: Rob Brown, John Flaherty, Ric Lombardo

Date Published: 1/01/2002

Published in: Volume 8 - 2002 Issue 4 (pages 300 - 312)

Abstract

Potential investors who have decided to use negative gearing to acquire an investment in residential property must decide on the maximum amount they can afford, given their financial circumstances and the financial attributes of the property. This article develops a simple model to assist potential investors to make this decision. The model is developed in an Australian institutional environment, but is sufficiently general that it should be readily adaptable to suit other countries that permit negative gearing. The characteristics of the model are analysed algebraically and numerically and the model is found to give plausible results. Some implications for interest rate policy are also noted.

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Keywords

Negative Gearing - Residential Property Investment

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