A property is positively geared when the total rent received over a year exceeds the total cost of holding it. The costs that count include loan repayments (interest and principal), property management fees (typically 8-10% of rent), council rates, water rates, landlord insurance, strata levies where applicable, and reasonable maintenance and repairs.
For example: a property renting for $2,200 per month ($26,400 per year) with total annual holding costs of $23,000 is positively geared by $3,400. That $3,400 surplus is passive income - it flows to you without requiring additional work. Over time, as rents increase and the loan balance falls, the positive cash flow typically grows.
It is worth noting that "positively geared" is often calculated on an interest-only loan basis in investor discussions. If principal repayments are included, fewer properties appear positively geared - but those principal repayments are actually building equity, which is wealth by another name. The relevant question for cash flow purposes is whether rent covers interest and all non-loan costs, with principal repayments treated separately as forced savings.
Unlike negative gearing, where the annual loss reduces your taxable income and generates a tax refund, a positively geared property adds income to your tax return. The net rental surplus - after all deductible expenses are claimed - is added to your other income and taxed at your marginal rate.
This is the key trade-off with positive gearing: you pay more tax in the year of receiving the income, but you are also genuinely wealthier - you have more cash in hand rather than less. The tax on a $3,400 surplus at a 32.5% marginal rate is $1,105, leaving $2,295 net in your pocket. That is still real, spendable income that required no extra work to earn.
Investors in lower tax brackets benefit proportionally more from positive gearing than those in high brackets, because less of the surplus is captured by the ATO. Conversely, high-income investors receive a larger effective subsidy from the tax system when they are negatively geared.
Negative gearing means the property costs more to hold than the rent covers. The loss reduces your taxable income in the current year, effectively shifting part of the holding cost onto the ATO through a reduced tax bill. The investor is betting that capital growth will more than offset the annual cash shortfall over time.
Positive gearing means the property pays for itself and generates surplus cash. There is no reliance on capital growth to justify the investment annually - the property is already working. Many investors who once held negatively geared properties find those same properties transition to positively geared over time as rents rise relative to fixed loan repayments, particularly on fixed-rate or lower-rate loans.
Neither is universally superior. The right choice depends on your income tax bracket, your investment timeline, your cash flow needs and the specific property's expected growth and yield. A quality investment property in a high-demand area might be modestly negatively geared today and strongly positively geared in 10 years, delivering both tax benefits in the short term and growing income over the long term.
Investors actively targeting positive gearing from day one are typically looking for properties with high gross rental yields - often in regional areas, outer suburbs or through commercial property. Residential property in premium metropolitan locations tends to offer lower yields but stronger capital growth; regional and outer suburban property often offers higher yields but more modest growth.
Positive gearing becomes the natural goal as investors age and approach retirement, when they want income rather than deductions and when their marginal tax rate may be lower. It is also more attractive when interest rates are elevated - in a high-rate environment, the cost of a negative carry becomes steeper, making high-yielding positively geared properties comparatively more appealing.
Debt reduction strategies also push properties toward positive gearing. An investor who has paid down a significant portion of the loan balance over 10 to 15 years may find the same property that was negatively geared at purchase is now strongly positively geared - delivering both income and a substantially lower loan balance.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. We will structure your investment loan to suit your goals.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192. Tax matters discussed are general in nature - consult your accountant for advice specific to your situation.