Top Strategies to Structure a Positive Geared Investment Loan

What Does Positive Gearing Actually Mean?

Positive gearing means your rental income exceeds all property expenses including loan repayments, rates, insurance, and maintenance.

The rental property generates more income than it costs to hold, leaving you with surplus cash flow each week or month. Unlike negative gearing where you claim tax deductions on losses, positive gearing delivers income you'll pay tax on because the property is profitable. The calculation is straightforward: if your tenant pays $550 per week and your mortgage repayment is $480 with another $50 in weekly holding costs, you're positively geared by $20 per week.

This approach suits investors who want immediate cash flow rather than waiting for capital growth to offset years of losses. It's particularly relevant now that the federal budget announced changes to negative gearing for established properties purchased after May 2026, making cash flow strategies more attractive for some buyers.

How Loan Structure Affects Your Cash Flow

The way you structure your investment loan directly determines whether your property generates weekly income or costs you money.

Most investors default to principal and interest repayments over 30 years because that's what they're familiar with from owner-occupied lending. For an investment loan, this might not serve your cash flow goals. Consider a scenario where you borrow $450,000 at current variable rates. Principal and interest repayments over 30 years might sit around $670 per week. Switch to interest only for five years and that drops to roughly $500 per week. That $170 difference each week is the margin between positive and negative gearing for many properties.

Interest only repayments aren't suitable for everyone and you'll eventually need to pay down the principal. But for investors prioritising cash flow in the early years while building equity through capital growth, it's a legitimate strategy worth discussing with your broker. The structure you choose should align with whether you're focused on immediate income or long-term wealth accumulation.

Deposit Size and Borrowing Capacity

A larger deposit reduces your loan amount and therefore your repayments, making positive gearing more achievable.

If you're borrowing 80% of the purchase price rather than 90%, your weekly repayments drop immediately. This often makes the difference between a property that costs you money and one that pays you. A 20% deposit also means you avoid Lenders Mortgage Insurance, which adds to your loan balance and increases repayments further. When you're trying to structure positive cash flow, every dollar of weekly repayment matters.

Many Victorian investors we work with leverage equity from their existing home to fund the deposit on an investment property. This allows them to enter the market without saving a separate cash deposit, though it does increase the loan amount on their primary residence. The trade-off depends on your overall strategy and whether you're comfortable with higher debt against your home in exchange for acquiring a cash-flowing asset.

Choosing a Property That Supports Positive Gearing

Not all properties can be positively geared at current rental yields and loan rates.

You need to target locations and property types where weekly rent is high relative to purchase price. In Victoria, this typically means looking at regional centres or outer suburban areas where yields sit above 5%, rather than inner Melbourne where yields often fall below 3%. A unit in a regional town might rent for $400 per week with a purchase price around $350,000, delivering a gross yield over 5.9%. The same $400 weekly rent in an inner suburb might only buy you a property worth $500,000, dropping your yield to 4.1%.

The property also needs to attract stable tenants with minimal vacancy periods. A positively geared property that sits empty for six weeks a year quickly becomes negatively geared once you account for lost rent. Consider properties near hospitals, universities, or major employers where rental demand remains consistent. Body corporate fees for units can also erode cash flow, so factor those into your calculations if you're looking at apartments.

Fixed vs Variable Rates for Investment Loans

Your choice between fixed and variable rates changes your repayment certainty but also affects your ability to make extra repayments or access redraw.

Fixed rates lock in your repayment amount for a set period, typically one to five years. This gives you predictable cash flow, which matters when you're calculating whether the property stays positively geared. If rates rise during your fixed period, you're protected. If they fall, you're locked in at the higher rate. Most fixed investment loans limit extra repayments to around $10,000 per year and don't offer redraw, which reduces flexibility if your circumstances change.

Variable rates move with the market, meaning your repayments can increase or decrease. You'll have access to features like offset accounts and unlimited extra repayments, which can be useful if you want to reduce your loan balance over time or build up accessible cash reserves. Many investors choose a split structure, fixing part of the loan for certainty and keeping part variable for flexibility. There's no universal answer, it depends on your risk tolerance and whether you value certainty over flexibility.

Tax Implications You Need to Understand

Positive gearing means you'll pay tax on the surplus income your property generates.

If your property delivers $2,000 in positive cash flow over the year, that's added to your taxable income. At a marginal tax rate of 32.5%, you'd pay $650 in tax on that income, leaving you with $1,350 after-tax surplus. This is the opposite of negative gearing, where losses reduce your taxable income and generate a tax refund. Some investors mistakenly assume negative gearing is always better because of the tax benefit, but that logic only works if you're comfortable funding ongoing losses while waiting for capital growth.

Under the changes announced in the federal budget, negative gearing deductions for established residential properties purchased after May 2026 will be restricted from July 2027. Losses can still be carried forward and offset against future rental income or capital gains, but you won't be able to claim them against your salary or other income. This makes positive gearing a more compelling strategy for investors who want immediate benefit rather than deferred deductions. New builds remain eligible for full negative gearing, which is worth considering if you're comparing options.

When to Consider Refinancing Your Investment Loan

Refinancing becomes relevant when your current rate or loan structure no longer supports your cash flow goals.

If you took out an investment loan two years ago and rates have since improved, you might be paying more than necessary. A rate reduction of even 0.25% can shift a marginally negative property into positive territory. In our experience, investors often stay on their original loan longer than they should because refinancing feels complicated. It's worth reviewing your loan annually to check whether better investment loan options are available, particularly if your circumstances have changed or you've built additional equity.

Refinancing also allows you to restructure from principal and interest to interest only if you initially chose the wrong setup, or to release equity for purchasing additional properties. Lenders reassess your borrowing capacity during refinancing, so make sure your income and expenses still support the application. The process typically takes four to six weeks from application to settlement.

Building a Portfolio with Positive Gearing

Once you've established one positively geared property, that cash flow can help you qualify for additional investment loans.

Lenders include rental income in your borrowing capacity calculations, usually at 80% of the actual rent to account for vacancy and maintenance costs. If your first investment property delivers $100 per week in positive cash flow, that strengthens your serviceability for a second loan. This creates a compounding effect where each property improves your ability to acquire the next one, assuming you're maintaining genuine savings and not overextending.

The strategy works well for expanding your property portfolio without relying on continuous capital growth to fund deposits. You're using rental income rather than hoping property values rise quickly enough to release equity. It's a slower approach than highly leveraged negative gearing strategies, but it's more sustainable if the market flattens or your personal income changes. The key is making sure each property genuinely adds to your cash flow rather than becoming a drain during difficult periods.

Call one of our team or book an appointment at a time that works for you. We'll walk through your specific situation, run the numbers on potential properties, and structure an investment loan that aligns with your cash flow goals.

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