Smart ways to approach positive geared investment loans

What Does Positive Gearing Actually Mean?

Positive gearing happens when your rental income exceeds all your property expenses, including loan repayments, council rates, insurance, and maintenance. You make a profit each week or month that gets added to your taxable income.

Consider a property in Thornlie where the rent covers the mortgage repayment and still leaves you with funds after you've accounted for body corporate fees, insurance, and an allowance for repairs. That surplus gets taxed at your marginal rate, but the property is still paying for itself and putting money in your pocket. It's different from negative gearing, where you claim a loss against your other income.

How Lenders View Positively Geared Properties

Lenders typically assess positively geared properties more favourably than negatively geared ones. The rental income contributes to your borrowing capacity rather than reducing it, which means you might qualify for a larger loan amount or find it easier to get approved for a second property down the track.

When you apply for an investment loan, most lenders will use around 80% of the rental income in their calculations to account for vacancy periods and maintenance costs. If your property genuinely covers its own costs, that 80% figure still works in your favour. You're not relying entirely on your salary to service the debt, which strengthens your position. This becomes particularly relevant if you're thinking about expanding your property portfolio later on.

Interest Rate Structures for Investment Loans

You'll choose between a variable rate and a fixed rate when setting up your investment loan. Variable rates move with the market, which means your repayments can go up or down. Fixed rates lock in a set repayment amount for a chosen period, usually between one and five years.

Many property investors split their loan between fixed and variable. You might fix 50% to 70% of the loan to protect against rate rises, then leave the rest on a variable rate so you can make extra repayments without penalty if you want to pay down the debt faster. That flexibility matters more with positively geared properties because you're generating surplus cash that you might want to direct back into the loan.

Thornlie's Rental Market and Investment Potential

Thornlie sits 20 kilometres southeast of Perth's CBD, with convenient access to both the Canning Vale industrial area and the city via the train line. The suburb attracts families and young professionals who want affordability without being too far from employment hubs. Rental demand has stayed consistent, particularly for three-bedroom homes within walking distance of the train station.

The suburb's median rent tends to track slightly below inner-city areas, but so do purchase prices, which can create opportunities for positive gearing if you buy well and keep your loan structure efficient. Properties near Forest Lakes Shopping Centre or close to local schools typically see lower vacancy rates, which helps maintain that positive cash flow you're targeting.

Interest Only vs Principal and Interest for Positive Gearing

Interest only loans keep your repayments lower because you're not paying down the principal. That might sound counterintuitive for a positively geared property, but it can make sense if you're trying to maximise cash flow in the early years or if you plan to use surplus income for other investments.

Principal and interest repayments build equity from day one. If your property is already covering its costs, paying down the loan means you're reducing debt while still generating income. Consider a Thornlie investor who buys a unit close to the train station. The rent covers a principal and interest loan, and each year the loan balance drops while the property value hopefully increases. Over time, that combination builds wealth faster than an interest only structure would.

Tax Treatment When Your Property Makes a Profit

When your investment property is positively geared, the surplus income gets added to your taxable income. You still claim deductions for all your property expenses, including loan interest, but you can't use a net loss to reduce your tax on other income because there isn't a loss to claim.

Some investors assume positive gearing means higher tax bills and therefore avoid it. That's backwards. Yes, you pay tax on the profit, but you're still ahead after tax compared to a negatively geared property that costs you money each month. You're building wealth through both cash flow and capital growth rather than relying only on growth to eventually offset the losses you've been funding.

How Positive Gearing Affects Future Borrowing

Banks treat positively geared properties as an asset that strengthens your financial position. When you apply for another loan, whether it's for a second investment property or upgrading your own home, lenders can see that your existing property isn't draining your income.

This matters more than many investors realise. If you want to build a portfolio, serviceability becomes the main constraint. A property that pays for itself keeps your borrowing capacity available for the next purchase. That's one reason investors who start with positive gearing often find it easier to scale their portfolio compared to those who take on multiple negatively geared properties that collectively require significant income support.

Structuring Your Deposit and Loan Features

Most lenders require a 20% deposit for investment loans to avoid Lenders Mortgage Insurance, though some will lend at higher ratios if you're willing to pay the LMI premium. If you're buying in Thornlie and aiming for positive cash flow, keeping your loan amount lower by contributing a larger deposit can be the difference between breaking even and actually making a profit each month.

Loan features matter too. An offset account lets you park surplus rental income and reduce the interest you pay without technically making extra repayments, which keeps your cash accessible. A redraw facility does something similar but locks the money into the loan structure. If your property is generating positive cash flow, you want flexibility to access that money if another opportunity comes up or if you need funds for maintenance.

Should You Refinance an Existing Investment Loan?

If your investment property has moved from negative to positive gearing because rents have increased or you've paid down enough of the loan, it might be worth reviewing your loan structure. You could refinance your investment loan to access a better rate or switch from interest only to principal and interest now that the numbers support it.

Refinancing can also free up equity if your property has increased in value. That equity can be used as a deposit for another property, allowing you to leverage the strong position your positively geared asset has created. Just make sure the refinance costs and any rate changes don't erode the cash flow advantage you've built.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, look at what Thornlie properties might suit your strategy, and structure an investment loan that aligns with your goals.

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