What Is Positive Gearing on an Investment Loan
A positively geared investment property generates rental income that exceeds all holding costs, including loan repayments, rates, insurance, and management fees. The surplus becomes taxable income in the year you receive it.
Consider a buyer who purchases a unit in Kearneys Spring close to the University of Southern Queensland. The property attracts consistent student rental demand and achieves $450 per week. With a mortgage structured at 70 per cent LVR on a variable rate, the weekly cost of principal and interest repayments, rates, insurance, body corporate fees, and property management sits at $390. The property delivers $60 per week in positive cash flow before tax. That surplus supports the investor's living expenses or funds additional investment loan repayments to reduce the principal faster.
Positive gearing suits investors who prioritise immediate income over tax deductions. Rental income above your expenses is reported as assessable income and taxed at your marginal rate. Unlike negative gearing, you cannot offset a loss against salary or wages because no loss exists.
How Loan Structure Affects Cash Flow
The choice between interest-only and principal-and-interest repayments directly changes whether a property delivers positive cash flow.
An interest-only investment loan reduces your monthly repayment because you are not paying down the loan amount during the interest-only period. This structure increases the chance of positive gearing, particularly in suburbs where rental yields are moderate. However, the loan amount remains unchanged, and capital growth must eventually offset the lack of principal reduction.
Principal and interest repayments require higher monthly payments but reduce the loan balance over time. The property may be negatively geared in early years and shift to positive as rents rise or the loan balance falls. A property in Kearneys Spring purchased with principal and interest repayments from day one builds equity faster and reduces the investor's exposure to interest rate movements.
Under APS 112, interest-only investment loans attract higher risk weights than principal-and-interest loans at the same LVR. Lenders pass that capital cost to borrowers through higher investor interest rates on interest-only products. The interest rate difference can be 0.30 to 0.60 percentage points depending on the lender and your deposit size.
Rental Yield and Loan to Value Ratio
A property's rental yield must exceed your effective borrowing cost for positive gearing to occur without relying on low leverage.
Rental yield is calculated as annual rent divided by purchase price. A property that rents for $23,400 per year and costs $520,000 delivers a gross yield of 4.5 per cent. Once you deduct all holding costs except interest, the net yield may fall to 3.8 per cent. If your investment loan interest rate sits above that net yield, the property will only be positively geared if your loan to value ratio is low enough that repayments and other costs stay below rental income.
Kearneys Spring offers a mix of established homes and units within proximity to education and health precincts. Properties closer to Toowoomba Base Hospital and the university precinct typically achieve higher occupancy rates, which supports consistent rental income and lowers vacancy risk. A lower LVR also reduces your interest cost as a dollar amount, even if the rate remains the same, because the loan amount is smaller.
Investors who access equity from an existing property to fund a deposit can achieve a lower LVR on the new investment property finance without using cash savings. The released equity becomes the deposit, and the new loan is written at 70 or 80 per cent LVR. This approach preserves liquidity while maintaining positive cash flow on the investment property.
Tax Treatment Under Current and Incoming Rules
Investors who purchase property in Kearneys Spring after 12 May 2026 need to understand how negative gearing restrictions affect positively geared properties.
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, losses on established residential investment properties acquired after 7:30pm AEST on 12 May 2026 can only be offset against income from other residential properties from the 2027-28 income year. Excess losses carry forward. Positively geared properties are not directly affected by this change because they generate assessable income rather than a loss.
However, if you hold multiple investment properties and one is positively geared while another is negatively geared, the loss from the negatively geared property can offset the income from the positively geared property. This reduces your overall taxable income from residential property holdings and lowers the tax payable on the surplus from the positively geared asset.
Capital gains tax changes from 1 July 2027 replace the 50 per cent discount with cost base indexation and a 30 per cent minimum tax rate on real gains accruing after that date. For a positively geared property held long term, indexation may reduce the taxable gain on disposal compared to the current discount method, depending on inflation over the holding period. Eligible new builds retain access to both the 50 per cent discount and the indexed method, and the investor can choose the more favourable option at the time of sale.
Serviceability and Debt to Income Limits
Lenders assess your ability to service an investment loan by applying a minimum interest rate buffer of 3.0 percentage points above the loan product rate and using a rental income shading factor, typically 80 per cent of the rental income.
If a property generates $450 per week in rent, the lender will assess serviceability using $360 per week. This shading accounts for vacancy periods, maintenance, and collection risk. A positively geared property still needs to meet this serviceability test, and the surplus cash flow you receive does not increase your borrowing capacity unless it is declared and verified as assessable income over multiple years.
From 1 February 2026, ADIs are restricted to lending no more than 20 per cent of new investor loans to borrowers with a total debt to income ratio of six times or greater. If your total borrowings across all loans, including investment and owner-occupied mortgages, are more than six times your gross annual income, you may find fewer lenders willing to approve additional investment borrowing. A positively geared property improves your cash flow position but does not change your DTI ratio unless the rental income is counted in the income component, which varies by lender.
Brokers who work with clients in Kearneys Spring regularly structure investment loan applications to include verified rental income from existing investment properties, which can lift the borrower's assessed income and improve DTI and serviceability outcomes. This requires providing lease agreements, rental statements, and tax returns showing rental income declared in prior years.
Choosing Between Variable and Fixed Rates
Variable rate investment loans allow you to make extra repayments and access offset accounts, which can preserve positive cash flow by reducing interest charges without locking funds into the loan.
An offset account linked to a variable rate investment loan reduces the interest charged each day based on the offset balance. If you hold $20,000 in an offset account against a $400,000 loan, interest is calculated on $380,000. The rental income can be directed into the offset account, reducing the effective loan balance and increasing the surplus cash flow over time without triggering a principal repayment that reduces flexibility.
Fixed rate investment loans provide certainty over repayments for the fixed period but typically do not allow offset accounts or unrestricted extra repayments. If interest rates fall during the fixed term, you remain locked at the higher rate unless you pay break costs to exit early. For a positively geared property where cash flow is already favorable, a variable rate offers more flexibility to manage surplus income and adapt to rate changes.
Under APS 112, the risk weight assigned to a loan does not change based on whether the rate is fixed or variable, but lenders price fixed and variable rate products differently based on funding costs and interest rate risk. Investors should compare the effective rate after any discounts rather than the advertised rate, as the discount structure varies significantly across lenders and can depend on the loan amount, LVR, and whether you hold other products with that lender.
Building Wealth Through Positive Cash Flow
Positive gearing supports portfolio growth by freeing up cash flow that can be used to service additional investment loans or accelerate principal repayments on existing debt.
An investor who achieves $60 per week in positive cash flow from a Kearneys Spring property receives an additional $3,120 per year after covering all costs. That income can be redirected into a principal reduction on the same property, reducing the loan balance and increasing equity without requiring further savings. Alternatively, the surplus can be saved to fund a deposit on a second investment property, allowing the investor to leverage equity from the first property while maintaining serviceability for the new loan.
Positive cash flow also reduces reliance on employment income to service investment debt, which improves financial resilience if employment circumstances change. A portfolio of positively geared properties continues to generate income even if the investor reduces working hours or transitions to part-time employment, provided rental demand remains stable.
Kearneys Spring benefits from proximity to major employment and education hubs, which supports rental demand across both long-term residential leases and student accommodation. Properties that maintain high occupancy rates are more likely to sustain positive gearing over time, as vacancy periods directly reduce rental income and eliminate positive cash flow until a new tenant is secured.
Call one of our team or book an appointment at a time that works for you to discuss how positive gearing fits your investment strategy and access investment loan options from lenders across Australia.
Frequently Asked Questions
What is positive gearing on an investment property?
Positive gearing occurs when rental income exceeds all holding costs, including loan repayments, rates, insurance, and management fees. The surplus becomes taxable income in the year you receive it.
Does positive gearing affect my ability to borrow more?
Lenders assess rental income using a shading factor, typically 80 per cent of actual rent. Surplus cash flow improves your financial position but does not automatically increase borrowing capacity unless rental income is verified and declared over multiple years.
How do the negative gearing changes affect positively geared properties?
Positively geared properties are not directly affected by the negative gearing restrictions from the 2027-28 income year because they generate income rather than a loss. If you hold multiple properties, losses from negatively geared properties can offset income from positively geared properties.
Should I use interest-only or principal and interest for a positively geared property?
Interest-only repayments increase the chance of positive cash flow because monthly payments are lower. Principal and interest repayments reduce the loan balance over time and build equity faster, but may reduce or eliminate positive cash flow in early years.
What is the benefit of an offset account on a positively geared investment loan?
An offset account reduces the interest charged on your loan based on the account balance, increasing your surplus cash flow without requiring principal repayments. This preserves flexibility while reducing overall interest costs.
