The Pros and Cons of Positive Geared Investment Loans

What Makes a Property Positively Geared

A property is positively geared when the rental income exceeds all holding costs, including loan interest, rates, insurance, property management and body corporate fees. You're left with surplus cash in your pocket each week or month.

In South West Sydney, positive gearing usually shows up on higher yield properties in suburbs like Liverpool, Carnes Hill or Leppington, where rental demand from families and working professionals keeps rental returns strong relative to purchase price. Consider a scenario where an investor buys a three-bedroom townhouse at the current median in Liverpool, holds a 20 per cent deposit, and secures rental income that covers the variable rate interest, outgoings and still leaves $50 to $100 weekly surplus. That's positive cash flow, and it's often the result of buying at a lower price point where yields sit above 5 per cent.

The trade-off is capital growth. Properties that deliver immediate income tend to be in areas where growth is steady rather than explosive. That doesn't make them bad investments, it just means you're prioritising income now over price appreciation later.

Why Investors Choose Positive Cash Flow Over Tax Breaks

Some investors don't need the tax deduction. If you're building a portfolio, already have multiple negatively geared properties, or earn income in a structure where deductions don't help much, positive gearing can make more sense than adding another drain on your after-tax cash flow.

From the 2027-28 income year, losses on established residential properties acquired after 12 May 2026 can only be offset against other residential property income, not your salary. That shift has made positive gearing more attractive for investors entering the market now, especially if they don't yet own other rental properties to absorb those losses. Positive cash flow means you're not relying on tax time to balance your budget.

We regularly see this approach work for self-employed buyers in South West Sydney who want to grow their portfolio without tightening serviceability on future purchases. When a property pays for itself, lenders view your borrowing capacity differently. You're not bleeding cash each month waiting for a tax refund or future sale to make the numbers work.

How Rental Yield Affects Your Loan Serviceability

Lenders assess your borrowing capacity using the actual rental income, often discounted by a buffer to account for vacancy and management costs. When the income is strong enough to cover or exceed the loan repayment at the serviceability assessment rate, you don't take a serviceability hit on that loan. In fact, it can improve your position when applying for the next one.

In a scenario where an investor in Edmondson Park holds a positively geared property generating $650 per week in rent with loan repayments at $550 per week, the lender will apply a vacancy rate, usually around 5 per cent, and assess the loan at a rate 3 percentage points above the actual product rate. If the income still covers the assessed repayment after those buffers, the property is seen as self-funding. That frees up your personal income to support additional borrowing, whether that's another investment loan or upgrading your own home.

This becomes especially relevant if you're planning portfolio growth over the next few years. Each positively geared property you add strengthens your serviceability rather than weakening it, which is the opposite of what happens when you stack negatively geared assets.

Interest Only Loans and Positive Gearing Strategy

Most investors chasing positive cash flow use interest only repayments. Paying down principal reduces your surplus and can flip a positively geared property into a neutral or negative position, depending on the margin.

Interest only loans are structured so you pay only the interest component for a set period, typically five years, after which the loan reverts to principal and interest unless you refinance or extend the interest only term. Under current prudential rules, a loan with an interest only period longer than five years and an LVR above 80 per cent is classified as non-standard, which can affect pricing and availability.

If you're holding a property in Cecil Hills or Leppington with strong rental income, keeping repayments interest only for the first five years maximises your weekly cash surplus. That surplus can be redirected into an offset account, used to fund the next deposit, or simply provide breathing room while the property appreciates. Just make sure you're planning for the revert date, because when principal kicks in, your repayments can jump 30 to 40 per cent depending on the remaining loan term.

The Capital Growth Trade-Off You Need to Understand

Properties that generate strong rental yields today are often located in areas where capital growth has been modest historically. That's not always true, but it's common enough to matter when planning your investment strategy.

South West Sydney has seen solid growth over the last decade, particularly in growth corridors like Edmondson Park and Oran Park, but rental yields in those areas have compressed as prices climbed. The suburbs where you can still find positive cash flow, like parts of Liverpool and Carnes Hill, tend to be more established, with infrastructure already in place and less speculative upside baked into the price.

If your goal is building wealth through property, you need to decide whether you want income today or equity tomorrow. A positively geared property might deliver $3,000 to $5,000 in annual surplus, but if it grows at 3 per cent per year while a comparable property in a higher growth suburb grows at 6 per cent, you're leaving tens of thousands of dollars in equity on the table over a ten-year hold.

That said, if you're using positive cash flow to fund further purchases, the compounding effect of portfolio growth can outweigh slower individual asset performance. It's about knowing which role each property plays in your overall strategy.

How Positive Gearing Fits Into Your Tax Position

Under current tax law, all rental income is assessable, and all deductible expenses, including interest, can be claimed. When your property is positively geared, you're adding to your taxable income rather than reducing it. Depending on your marginal tax rate, that surplus might be taxed at 34.5 per cent or higher once you include the Medicare levy.

For some investors, that's fine. If you're earning under the top tax bracket, or you're planning to hold properties inside a structure like an SMSF, the tax treatment can still be manageable. Others find the tax cost erodes too much of the surplus to make positive gearing worthwhile compared to a negatively geared property with stronger growth prospects.

From 1 July 2027, capital gains tax on residential property will change. Gains accruing after that date will be taxed using cost base indexation and a 30 per cent minimum tax rate on real gains, replacing the 50 per cent discount for most investors. For properties bought as eligible new builds, you'll have the option to choose between the old discount and the new indexed method when you sell. If you're holding a positively geared property long term, understanding how those rules apply to your situation is part of the planning process.

When Positive Gearing Makes Sense in South West Sydney

Positive gearing works when you need cash flow now, when you're building a portfolio and can't afford to stack negatively geared loans, or when your tax position doesn't benefit from losses. It also works when you're buying in an area with strong rental demand and stable fundamentals, even if the growth story isn't as compelling as newer precincts.

In South West Sydney, that might look like a villa in Liverpool rented to a young family, a townhouse in Carnes Hill leased to dual-income professionals, or a unit near Liverpool train station with consistent tenant demand. These properties won't double in value overnight, but they'll cover their costs, generate surplus, and give you breathing room to keep building.

If your goal is financial freedom through passive income, positive gearing is the foundation. If your goal is wealth accumulation through equity, you might accept negative gearing on properties with stronger growth potential and use positive cash flow assets to balance your serviceability and risk. Many investors do both, holding a mix of high-yield and high-growth properties depending on what the market offers and where they are in their investing journey.

Call one of our team or book an appointment at a time that works for you. We'll walk through the numbers, show you what's available in South West Sydney right now, and help you figure out whether positive gearing fits where you're headed.

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