Top 10 Ways Positive Gearing Works for Property Investors

A positively geared investment property generates rental income that exceeds all holding costs, including loan repayments, body corporate fees, insurance and maintenance.

This strategy matters because changes to negative gearing rules from 1 July 2027 mean investors acquiring established dwellings after 12 May 2026 can no longer offset rental losses against salary or other income. Properties that pay their own way from settlement remove the need for tax offsets and provide cash flow from day one.

How Positive Gearing Compares to Negative Gearing

Positive gearing occurs when rental income exceeds all property expenses. Negative gearing occurs when those expenses exceed rent, creating a loss that can currently be offset against other income for tax purposes.

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, rental losses on established dwellings acquired after 12 May 2026 will be quarantined from 1 July 2027. Those losses can only offset future rental income or capital gains on residential property, not wages or business income. A positively geared property avoids this quarantine entirely because it produces a taxable surplus, not a loss.

Property Types That Support Positive Cash Flow in East Melbourne

Smaller studio and one-bedroom apartments in East Melbourne can deliver positive gearing when the investment loan is structured with a high deposit or offset using equity from an existing property.

Consider an investor purchasing a studio apartment near Yarra Park with a 40 per cent deposit. Weekly rent in the precinct for a studio typically sits around $450 to $500. At that rental level, with a principal-and-interest loan on the remaining 60 per cent and body corporate fees of approximately $1,200 per quarter, the property can generate a small surplus each month. The outcome depends on the purchase price relative to rent, but the principle holds across smaller formats where yield is higher.

Interest-Only Loans and Their Impact on Cash Flow

Interest-only repayments reduce your monthly loan cost compared to principal and interest, increasing the likelihood that rent will cover expenses.

Most lenders offer interest-only periods of up to five years on investment loan products. During that period, your repayment is lower and the rental surplus larger. Once the interest-only term ends, repayments revert to principal and interest, which can turn a positively geared property neutral or negative unless rents have increased. The interest-only structure works when your goal is immediate cash flow or when you plan to refinance or sell before the reversion.

Calculating Investment Loan Repayments on a Positively Geared Property

Your repayment amount determines whether rent will exceed costs. At current variable rates for investors, a loan amount of $400,000 on a principal-and-interest basis costs approximately $2,600 to $2,800 per month depending on the lender and any rate discount applied.

If the property generates $2,200 per month in rent and other holding costs total $400, the investor needs loan repayments below $1,800 to remain positively geared. That requires either a smaller loan amount, an interest-only arrangement, or a combination of both. Using an interest-only structure on the same $400,000 loan reduces the repayment to approximately $1,700 per month, turning the scenario cash-flow positive.

Loan to Value Ratio and Deposit Size

A lower loan to value ratio improves cash flow because the loan amount and repayment are smaller relative to the property value.

Investors using a 40 per cent deposit achieve an LVR of 60 per cent and avoid Lenders Mortgage Insurance. The smaller loan reduces monthly repayments and increases the chance that rental income will cover all costs. Investors can also leverage equity from an existing property to increase the deposit without using cash, though serviceability buffers and debt-to-income limits under current APRA settings may constrain how much additional borrowing is approved.

Variable Rate vs Fixed Rate for Positive Gearing

Variable rate loans allow repayments to fall if the Reserve Bank reduces the cash rate, improving your surplus. Fixed rate loans lock in certainty but do not benefit from rate cuts during the fixed period.

In our experience, investors targeting positive gearing favour variable rates when they expect rate stability or decline, because any reduction flows through immediately to lower repayments and higher surplus. A fixed rate suits investors who prefer certainty and are willing to forgo potential savings in exchange for known monthly costs. Split loans, where part of the balance is fixed and part variable, allow some exposure to rate movements while protecting a portion of the repayment.

Maximising Rental Income Without Increasing Vacancy

Positive gearing depends on consistent rental income. Properties in high-demand precincts with low vacancy rates protect that income.

East Melbourne sits adjacent to the CBD, Fitzroy Gardens and sporting precincts, attracting corporate tenants and professionals. Vacancy rates in the inner-city corridor are typically lower than outer suburbs, meaning less time between tenants and fewer weeks of lost rent. Selecting a property within walking distance of Jolimont Station or the Victoria Park tram route increases tenant demand and supports stable occupancy.

Tax Implications of a Positively Geared Property

A positively geared property produces taxable income because rental income exceeds claimable expenses. That surplus is added to your assessable income and taxed at your marginal rate.

If the property generates a $3,000 annual surplus and your marginal rate is 37 per cent, you pay approximately $1,110 in additional tax. While negative gearing provides a tax offset, positive gearing provides cash flow. The choice depends on whether you need income now or prefer to defer tax benefits to a future sale when capital gains are realised. Investors should seek advice from a licensed tax specialist to model both scenarios based on their individual circumstances.

Using Offset Accounts to Manage Surplus Cash Flow

An offset account linked to your investment loan allows you to deposit surplus rental income and reduce the interest charged on the loan balance.

If your property generates a $200 monthly surplus and you deposit that amount into a 100 per cent offset account, the interest charged on your loan drops each month. Over time, the accumulated offset balance reduces total interest paid and accelerates equity growth. Not all investment loan products offer offset accounts, and those that do may charge a higher interest rate or annual fee. Compare the benefit of the offset against the additional cost before selecting the product.

Refinancing to Maintain Positive Gearing Over Time

Interest rate changes and the end of interest-only periods can turn a positively geared property into a neutral or negatively geared one. Refinancing to a lower rate or extending the interest-only term can restore the surplus.

When an interest-only period ends, repayments increase because principal is now included. If rents have not kept pace, the property may no longer cover its costs. Refinancing to a new lender offering a lower rate or a fresh interest-only term resets the repayment and preserves cash flow. A loan health check at least six months before the interest-only term expires allows time to compare options and avoid automatic reversion to a higher repayment.

Call one of our team or book an appointment at a time that works for you to discuss how positive gearing fits your property investment strategy and current borrowing capacity.

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