Everything You Need to Know About Positive Gearing

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

The appeal is immediate cash flow and taxable income that doesn't erode your take-home pay. The challenge is structuring a loan that allows rental income to cover expenses while still meeting your investment goals. That balance depends on deposit size, loan structure, and property selection.

What Makes an Investment Property Positively Geared

A property becomes positively geared when weekly rent exceeds the combined cost of loan repayments, body corporate fees, council rates, insurance, and expected maintenance. The loan structure plays the largest role. A 40 per cent deposit on a principal and interest loan at current variable rates will produce lower repayments than a 20 per cent deposit on interest only. The same property can be positive or negative depending on how the finance is arranged.

Consider a buyer who purchases a two-bedroom unit in Camberwell with a 35 per cent deposit and selects a principal and interest variable rate loan. Weekly rent of $650 produces $33,800 annually. Loan repayments, rates, insurance, and body corporate fees total $31,200. The property generates a modest surplus before depreciation and other claimable expenses are factored in. The same property with a 10 per cent deposit and interest only repayments would run at a loss.

The structure you choose depends on whether you prioritise cash flow now or portfolio growth later. Positive gearing suits buyers with limited surplus income or those approaching retirement who need rental income to supplement other earnings.

How Loan Structure Affects Cash Flow

Interest only repayments reduce monthly outgoings but increase the total interest paid over time. Principal and interest repayments cost more each month but reduce the loan balance and build equity. For positive gearing, principal and interest often works better because lower loan balances mean lower interest costs, which improves the cash flow margin.

Variable rate loans allow you to make extra repayments and access redraw if cash flow tightens. Fixed rate loans lock in certainty but limit flexibility. Most lenders allow a combination. Splitting the loan between fixed and variable gives partial rate protection while retaining access to offset or redraw on the variable portion.

Deposit size has the most direct impact. A larger deposit reduces the loan amount and the repayments that follow. Lenders Mortgage Insurance adds to the loan if your deposit sits below 20 per cent, which increases repayments and makes positive gearing harder to achieve. In our experience, buyers targeting positive gearing either save a larger deposit or use equity release from an existing property to avoid LMI and keep repayments manageable.

Camberwell Property Types That Support Positive Gearing

Camberwell's median unit values sit below its median house values, but rental yields on units are generally stronger. Older-style two-bedroom units in smaller blocks closer to Camberwell Junction or within walking distance of Burke Road shops attract consistent rental demand from downsizers and professionals. These properties often suit positive gearing strategies when purchased with a deposit above 30 per cent.

Houses in Camberwell rarely deliver positive gearing unless purchased with a deposit well above 40 per cent or in pockets where land value hasn't outpaced rental growth. Buyers chasing capital growth in the Hartwell or Riversdale catchment zones typically accept negative gearing as part of the strategy.

Vacancy rates in the Boroondara area remain low, which supports reliable rental income. Body corporate fees vary widely depending on the age and facilities of the building. Newer complexes with gyms and concierge services can carry fees that erode cash flow. Older walk-up blocks with minimal common property tend to have lower fees and stronger yields relative to purchase price.

Interest Rate Considerations for Positive Gearing

Investor interest rates sit higher than owner-occupier rates, typically by 0.3 to 0.6 percentage points depending on the lender and loan features. Rate discounts depend on loan size, deposit, and whether you bundle other products. A larger loan amount often attracts a better rate discount, but that conflicts with the goal of keeping repayments low for positive gearing.

Variable interest rate movements affect cash flow directly. A rate rise of 0.5 percentage points can shift a positively geared property into negative territory if the margin is tight. Fixed interest rate loans provide certainty for one to five years but don't allow extra repayments beyond small thresholds. If rates fall during a fixed period, you won't benefit unless you refinance and pay break costs.

We regularly see buyers lock in a portion of the loan on a fixed rate to protect cash flow, while leaving the remainder on a variable rate to allow extra repayments when rental income exceeds expectations. That approach balances certainty with flexibility.

Tax Treatment and the 2027 Negative Gearing Changes

Positive gearing means you pay tax on the surplus rental income. That income is added to your assessable income and taxed at your marginal rate. Interest on the investment loan remains deductible, along with other claimable expenses such as rates, insurance, repairs, and depreciation. The net effect is that you receive cash flow but pay tax on the profit.

From 1 July 2027, residential investment properties purchased after 7:30pm AEST on 12 May 2026 will have net rental losses quarantined and unable to be offset against salary or wages. Properties that generate positive cash flow are unaffected by this change because there are no losses to quarantine. If you're considering an investment property in Camberwell now, positive gearing removes exposure to the new rules entirely.

Eligible new build residential properties retain access to negative gearing under the old rules. If you're deciding between an established unit and a new apartment, the tax treatment may influence which option delivers better after-tax returns depending on your income and goals.

When Positive Gearing Fits Your Investment Strategy

Positive gearing suits buyers with limited capacity to absorb ongoing losses, those nearing retirement who need passive income, or investors building a portfolio and wanting each property to support the next purchase. The surplus income improves serviceability, which allows you to borrow again sooner than if you were carrying negatively geared properties.

The trade-off is usually lower capital growth. Properties that deliver strong yields tend to sit in areas or property types where capital appreciation is slower. Camberwell's established units offer better yields than houses, but houses in tightly held pockets closer to private schools have historically delivered stronger long-term growth.

Your decision depends on whether you need cash flow now or wealth accumulation over time. For buyers with stable employment and surplus income, negative gearing on a well-located house can make sense despite the monthly shortfall. For buyers with tighter cash flow or multiple properties, positive gearing provides breathing room and reduces reliance on other income to cover holding costs.

Structuring Your Investment Loan Application

Lenders assess investment loan applications differently to owner-occupier loans. Rental income is included in serviceability calculations, but most lenders apply a discount of 20 per cent to account for vacancy rates, maintenance, and periods between tenants. A property renting for $650 per week will be assessed at $520 per week for serviceability purposes.

The debt-to-income cap introduced in February limits the portion of new lending that can exceed six times your gross income. If your salary and rental income after discounting don't support the loan amount you need, a larger deposit is the most direct solution. Some lenders apply DTI settings more conservatively than the regulatory floor, particularly for investors with multiple properties.

Access to investment loan options from banks and lenders across Australia means you're not limited to one credit policy. Some lenders take a more flexible view of rental income or allow higher loan to value ratios for strong applicants. If your circumstances don't fit a major bank's policy, smaller lenders and non-bank institutions often provide alternatives without materially higher rates.

Refinancing to Improve Cash Flow

If you already own an investment property that's negatively geared, refinancing can sometimes shift it into positive territory. Switching from interest only to principal and interest won't help cash flow in the short term, but refinancing to a lower rate or increasing your deposit by injecting savings can reduce repayments enough to close the gap.

Some buyers refinance to access equity in their owner-occupied home and use that equity as a deposit on the investment property. That structure keeps the investment loan smaller and repayments lower, but it increases the debt secured against your home. It's worth modelling the overall position with a broker before proceeding.

Refinancing an existing investment loan also allows you to review loan features. Offset accounts aren't typically available on investment loans, but redraw facilities and the ability to split between fixed and variable can improve flexibility. If your current loan lacks those features and you're planning to hold the property long term, switching to a product with better functionality can make ongoing management easier.

Positively geared properties give you options that negatively geared properties don't. The surplus income improves your borrowing capacity, supports portfolio growth, and removes the need to fund shortfalls from your salary. Whether that trade-off makes sense depends on your income, time horizon, and what you're trying to achieve.

Call us or book an appointment at a time that works for you. We'll walk through the numbers, compare loan structures, and help you decide whether positive gearing fits your situation or whether another approach delivers better long-term results.

Important: This does not constitute tax advice and it is recommended to seek advice from your Accountant or Financial Planner for your individual circumstances.