Smart ways to approach positive geared property loans

Positive Gearing: What It Actually Means for Your Wallet

A positively geared property generates more rental income each week than it costs to hold, including the loan repayment, insurance, rates and management fees. The surplus lands in your account as genuine cash flow. That income is fully taxable, so unlike a negatively geared property where you offset losses against your salary, a positive geared asset adds to your assessable income every year. You're building wealth through surplus income and capital growth at the same time, rather than relying on future price rises alone to justify the holding cost.

Consider a property in Oran Park leased at $600 per week. If your loan repayment sits at $450 per week and other outgoings total $80 per week, you're $70 per week ahead before tax. That's roughly $3,600 per year in surplus cash flow. Once you account for your marginal tax rate on that income, the net figure might sit closer to $2,000 to $2,500 annually, depending on your other earnings. The surplus gives you breathing room to hold the property without drawing on your salary, and it compounds if you direct that income toward the loan or into your next deposit.

Why Your Deposit Size Controls the Cash Flow

The deposit you put down determines your loan amount, which in turn controls your repayment size and whether the property remains cash flow positive. A larger deposit reduces the amount borrowed, lowers the weekly repayment and widens the gap between rent and cost. A smaller deposit increases your loan amount and pushes the repayment higher, which can flip a marginally positive property into neutral or negative territory.

In a scenario where rent covers $580 per week and you borrow 90 per cent of the purchase price, the repayment at current variable rates might sit around $520 per week, leaving $60 before other costs. Add $80 per week in rates, insurance, strata and management, and the property is now costing you $20 per week to hold. Drop the loan to value ratio to 80 per cent by contributing a larger deposit, and the repayment falls to roughly $460 per week. The same property now delivers a $40 per week surplus after all costs. The difference between those two positions is the deposit you contribute upfront.

Interest Only vs Principal and Interest: Which Structure Suits Positive Gearing

An interest only loan minimises your repayment for the interest only period, which maximises surplus cash flow in the short term. You're not paying down the loan balance, so the repayment is lower and the gap between rent and cost is wider. Principal and interest repayments are higher because you're reducing the debt each month, which narrows the surplus but builds equity faster.

If your priority is immediate cash flow to fund living expenses, reinvest into another deposit or service other debt, interest only investment loans deliver the lowest holding cost during the interest only term. If your priority is to reduce the loan balance and build unencumbered equity over time, principal and interest repayments achieve that at the cost of lower monthly surplus. Most lenders allow interest only terms of one to five years on investment loans, after which the loan reverts to principal and interest unless you apply to extend the interest only period. The reversion increases your repayment significantly, so factor that into your long-term cash flow projection.

Variable vs Fixed Rates on Positive Geared Loans

A variable rate moves with the lender's pricing decisions, which means your repayment and surplus can shift every few months. A fixed rate locks your repayment for a set term, usually one to five years, which removes uncertainty and protects your cash flow from rate rises during that period. The downside is that you're locked into that rate even if variable rates fall, and most fixed loans come with restrictions on extra repayments and break costs if you exit early.

For a positive geared property where cash flow stability matters, fixing a portion of the loan can protect the surplus from being eroded by unexpected rate increases. Splitting the loan between fixed and variable gives you partial protection while retaining flexibility to make extra repayments or refinance part of the debt without triggering break costs on the entire balance. If you're planning to refinance your investment loan in the next 12 to 24 months or you expect to sell within the fixed term, a variable rate avoids the penalty.

How Lenders Assess Positive Geared Investment Loans

Lenders assess your ability to service an investment loan using your income, existing debts and a rental income figure that's usually discounted by 20 per cent to account for vacancy and management costs. Even though the property is positively geared, the lender applies a serviceability buffer of at least 3.0 percentage points above the loan rate when calculating whether you can afford the repayment. That buffer is set by APRA and applies to all new borrowers through regulated lenders.

In our experience, a property generating $600 per week in rent will be assessed at $480 per week for serviceability purposes after the 20 per cent discount. The lender then tests whether you can service the loan at a rate that's 3.0 percentage points higher than the actual product rate, even if the property is cash flow positive at the real rate. If your other debts or living expenses are high, you may not meet the serviceability test despite the property being genuinely positive. Understanding your borrowing capacity before you start looking helps avoid wasting time on properties that don't fit your serviceability profile.

Does Positive Gearing Still Deliver Tax Deductions

Interest on borrowings used to acquire or hold residential rental property is deductible against assessable income to the extent the property is rented or held to produce assessable income. Even though the property generates a surplus, the interest portion of your repayment, along with other holding costs like rates, insurance, repairs and depreciation, remain fully deductible. The difference is that instead of using those deductions to reduce a loss, you're using them to reduce the taxable surplus.

If the property generates $3,600 per year in positive cash flow before tax and you have $8,000 in deductible interest plus $3,000 in other deductible costs, your taxable income from the property is actually a loss of $7,400 for tax purposes, even though cash landed in your account each month. That loss can still be offset against your salary under the current rules for properties held before the negative gearing changes took effect. For properties acquired after the relevant cut-off date, losses are quarantined and can only offset other residential property income, but the deductions themselves haven't disappeared.

Positive Gearing in South West Sydney: Where the Numbers Work

South West Sydney suburbs like Oran Park, Leppington and Gregory Hills have attracted investors looking for newer stock with strong rental demand from families relocating for affordability and proximity to the new airport precinct. Rental yields in these areas often sit between 4.5 per cent and 5.5 per cent, which is higher than established inner and middle ring suburbs where capital growth historically outpaces income return. The combination of newer builds, lower body corporate costs and strong tenant demand creates conditions where positive gearing is achievable without requiring an unusually large deposit.

A townhouse in Leppington leased at $575 per week with an 80 per cent loan to value ratio can generate modest positive cash flow at current variable rates, depending on purchase price and loan structure. The same property purchased with a 70 per cent loan to value ratio improves the surplus by reducing the weekly repayment. Investors in the area regularly see rental demand driven by families moving from higher-priced suburbs closer to the city, as well as essential workers supporting the Western Sydney growth corridor. Vacancy rates remain low compared to oversupplied apartment markets in some parts of greater Sydney.

What Happens When You Want to Grow the Portfolio

A positive geared property improves your serviceability position for future borrowing because the rental income, even after the lender's 20 per cent discount, exceeds the loan cost and reduces your net debt position on paper. That makes it easier to qualify for a second investment loan compared to holding a negatively geared property that increases your monthly commitment without offsetting income.

If you're planning to build a portfolio of multiple investment properties, starting with a positive geared asset gives you cash flow to cover holding costs while you save the next deposit and improves your serviceability for the next purchase. Each positively geared property you add strengthens your borrowing position rather than eroding it. We regularly see investors who began with one positive geared property in South West Sydney use the surplus cash flow and improved serviceability to acquire a second property within two to three years, whereas negatively geared investors often need to wait longer to rebuild serviceability and savings between purchases.

If you're ready to structure a loan that supports positive cash flow and long-term portfolio growth, call one of our team or book an appointment at a time that works for you.

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