Do you know what Positive Gearing means for Investors?

Positive gearing means your rental income is higher than all the costs associated with owning that property.

This includes your loan repayments, property management fees, insurance, rates, and maintenance. When the numbers work this way, you receive regular income from your investment property instead of covering a shortfall from your own pocket each month. For many people buying their first investment property in NSW, this approach offers predictable cash flow and removes the need to subsidise the property while you hold it.

How Rental Income Stacks Up Against Property Costs

Your property becomes positively geared when the weekly rent multiplied by 52 exceeds your annual holding costs. Those costs include loan repayments, council and water rates, strata fees if applicable, landlord insurance, property management fees, and an allowance for repairs and maintenance.

Consider a buyer who purchases a two-bedroom unit in a regional centre where rental demand is strong. The property generates $480 per week in rent, which works out to $24,960 annually. Their loan repayments sit at $18,000 per year, and they allow $5,000 for rates, insurance, management fees, and repairs. The property produces $1,960 in positive cash flow each year. That surplus goes into their bank account rather than coming out of it.

What This Means for Your Tax Position

When your property is positively geared, you pay tax on the net rental income. This is the opposite of negative gearing, where you claim a loss against your other income.

Your taxable rental income is calculated by taking your gross rent and subtracting allowable expenses like loan interest, council rates, insurance, property management fees, and depreciation. If you borrowed to purchase the property, the interest portion of your loan repayments is deductible, but the principal repayments are not. If you're on a higher marginal tax rate, the surplus income from a positively geared property will be taxed at that rate. Some investors accept this because they prefer consistent cash flow over a tax deduction, especially if they're building long-term wealth through rental income and capital growth rather than relying on immediate tax benefits.

It's worth noting that recent changes to negative gearing announced in the Federal Budget now limit how losses from established residential properties can be claimed. From 1 July 2027, those losses can only be offset against other property income, not against wages. Positively geared properties are unaffected by this change because there's no loss to offset.

Structuring Your Investment Loan for Positive Cash Flow

The structure of your investment loan directly affects whether your property remains positively geared. Interest-only repayments reduce your monthly costs because you're not paying down the principal during the interest-only period. This can turn a marginally negative property into a positive one, particularly in the early years when rental income may be lower or when you're holding the property for capital growth.

A variable rate gives you flexibility if you want to make extra repayments or pay off the loan early without penalty. A fixed rate locks in your repayments for a set period, which helps with budgeting and protects you if rates rise. Some investors use a split loan, fixing part of the debt for certainty and keeping part variable for flexibility. The loan structure you choose depends on your cash flow needs, your risk tolerance, and how long you plan to hold the property.

Your deposit size also matters. A deposit of 20% or more means you avoid Lenders Mortgage Insurance, which reduces your upfront costs and keeps your loan amount lower. That directly improves your cash flow position because your repayments are smaller. If you're expanding your property portfolio, using equity from an existing property as your deposit can help you avoid selling assets or drawing down savings.

Interest-Only Repayments and When They Make Sense

Interest-only investment loans let you pay only the interest portion of your loan for a set period, usually between one and five years. Your repayments during this time are lower than they would be on a principal and interest loan, which can help maintain positive cash flow.

This approach works when you expect the property to grow in value and you plan to refinance or sell before the interest-only period ends. It also suits investors who want to direct surplus funds toward other investments or toward paying down non-deductible debt like their home loan. Once the interest-only period expires, your loan reverts to principal and interest repayments unless you apply to extend it. At that point, your repayments increase, and the property may no longer be positively geared unless rents have risen or you've refinanced to a lower rate.

Some lenders limit interest-only terms or require a lower loan to value ratio for investment properties, so it's worth discussing your options when you apply. If maintaining positive cash flow is your priority, an interest-only loan can be a useful part of your property investment strategy.

Rental Yield and Property Selection in NSW

Rental yield is your annual rental income divided by the property's purchase price, expressed as a percentage. A property with a higher yield is more likely to be positively geared because the rent covers a larger proportion of your holding costs.

In NSW, regional areas and smaller towns often deliver higher yields than metro suburbs because purchase prices are lower relative to weekly rents. A unit in a regional centre might achieve a gross yield of 5% to 6%, while a similar property in inner Sydney might sit closer to 3%. The trade-off is that capital growth in regional areas can be slower or less predictable, so you're relying more on rental income than on price appreciation.

When you're assessing a property for positive gearing, factor in vacancy rates and tenant demand. A property that sits vacant for several weeks each year reduces your annual rental income and can push the property into negative territory. Areas with strong employment, affordable rents relative to local wages, and limited new housing supply tend to have lower vacancy rates and more stable rental income.

Borrowing Capacity and How Lenders Assess Investment Loans

Lenders calculate your borrowing capacity by looking at your income, your existing debts, and the rental income the property will generate. They don't count 100% of the projected rent because they allow for periods of vacancy and holding costs. Most lenders apply a rental income assessment rate of around 80%, meaning they only count $400 of a $500 weekly rent when working out what you can borrow.

They also assess your loan at a higher interest rate than the actual rate you'll pay. This buffer, usually around 3%, ensures you can still afford the repayments if rates rise. If you already own property or have other debts, those commitments reduce the amount you can borrow for your investment property. Lenders also consider your deposit, your employment stability, and your credit history.

If you're self-employed or have multiple income sources, lenders may require additional documentation to verify your income. A mortgage broker can help you present your financials in a way that maximises your borrowing capacity and matches you with lenders who are more flexible with investment lending.

Ongoing Costs That Affect Your Cash Flow

Holding costs for an investment property go beyond your loan repayments. Council rates, water rates, strata fees, landlord insurance, and property management fees all reduce your net rental income. You also need to budget for repairs and maintenance, which can vary significantly depending on the age and condition of the property.

Strata fees for units can be substantial, particularly in buildings with lifts, pools, or shared facilities. These fees increase over time and can erode your positive cash flow if you don't factor them in at the start. Landlord insurance covers you for damage caused by tenants and loss of rental income, and it's a deductible expense. Property management fees are typically between 5% and 8% of the weekly rent, and they cover tenant placement, rent collection, and ongoing property management.

Some investors underestimate how much they'll spend on maintenance and repairs. A hot water system replacement, roof repair, or carpet replacement can cost several thousand dollars, and these expenses don't always align with periods when you have surplus cash. Setting aside a portion of your rental income each year for these costs helps you maintain positive cash flow over the long term.

Refinancing Your Investment Loan to Improve Cash Flow

Refinancing your investment property loan can reduce your interest rate, lower your repayments, and improve your cash flow. If you've held the property for several years and built up equity, you may be able to refinance to a lower rate or negotiate better loan features.

Investment loan refinancing also lets you switch from principal and interest to interest-only repayments, or vice versa, depending on your current strategy. If your property is now positively geared and you want to start paying down the loan, switching to principal and interest can help you build equity faster. If your cash flow is tight and you want to maximise deductions, extending your interest-only period may be an option.

Some investors refinance to access equity for their next property purchase. If your property has increased in value, you can borrow against that equity without selling. This strategy works well if you're building a portfolio and want to use your existing assets to fund future investments. A broker can help you compare refinancing options and identify lenders who offer the features and rates that suit your goals.

Call one of our team or book an appointment at a time that works for you. We'll walk through your investment goals, compare loan options from lenders across Australia, and structure a loan that supports positive cash flow and long-term portfolio growth.

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