A positively geared property generates more rental income than its total holding costs — creating a net positive cash flow for the investor. While less common in premium Australian capital city markets, positively geared properties exist across regional areas, outer suburbs, and higher-yielding property types, and are the foundation of income-focused property investing strategies.
What Is Positive Gearing?
A property is positively geared when:
Annual rental income > Annual deductible costs (interest, rates, management, insurance, depreciation)
Example:
- Annual gross rent: $28,000
- Annual costs (interest, management, rates, insurance, maintenance): $22,000
- Net rental surplus: $6,000
The investor receives $6,000 per year in net income before tax. This is the opposite of negative gearing, where the investor tops up the shortfall.
How Positive Gearing Affects Tax
Unlike negative gearing — which reduces taxable income — positive gearing increases taxable income:
- The $6,000 net surplus is added to the investor’s assessable income
- Tax is payable on this surplus at the investor’s marginal tax rate
- At a 37% marginal rate, $6,000 surplus = $2,220 in additional tax
This is the key trade-off: positively geared properties provide real cash flow but reduce the tax advantage that attracts many investors to negatively geared property.
Where Positively Geared Properties Are Found
Positive gearing is more common where rental yields are high relative to purchase prices:
- Regional Australia: Towns with strong employment (mining, agriculture, tourism) and limited housing supply
- Outer suburban areas: Lower purchase prices while rents remain moderate
- High-density units: Units in strong rental markets can yield more than houses
- Commercial property: Office, retail, industrial — generally higher yields than residential
Major capital city inner rings (Sydney, Melbourne) are rarely positively geared at standard mortgage rates.
Positive vs Negative Gearing — Comparison
| Feature | Positive Gearing | Negative Gearing |
|---|---|---|
| Cash flow | Positive (you receive net cash) | Negative (you top up each month) |
| Tax on income | Extra tax payable | Tax reduction (loss offsets other income) |
| Strategy focus | Yield / income | Capital growth |
| Common locations | Regional, high-yield areas | Premium capital city suburbs |
| Suitability | Investors wanting cash flow | Investors with strong income to offset losses |
The Role of Depreciation
A property that appears negatively geared before depreciation may become neutral or positive after including non-cash depreciation deductions. Depreciation reduces your taxable rental income without reducing your actual cash flow — effectively converting a nominally negative cash position into a higher after-tax return. See Depreciation on Investment Property.
Positively Geared Strategy Considerations
Investors pursuing positively geared properties typically:
- Accept lower expected capital growth in exchange for cash flow
- Can service additional properties more easily (surplus cash from one property helps fund another)
- Are less affected by rising interest rates (larger buffer between income and costs)
- May be in lower income tax brackets where the capital growth / negative gearing tax benefit is less valuable
Related Articles
- Negative Gearing Explained
- Capital Growth vs Rental Yield
- Rental Yield Explained
- Depreciation on Investment Property
- Property Investing hub
Frequently Asked Questions
Is positive gearing better than negative gearing? Neither is universally better — the right approach depends on your income, tax situation, investment goals, and the specific properties available. Positive gearing provides cash flow; negative gearing provides a tax benefit and relies on capital growth. Some investors pursue a mix across their portfolio.
Can a property switch from negative to positive gearing? Yes. As rents rise over time while mortgage interest may stay relatively stable (especially on a fixed rate), a previously negatively geared property can become positively geared. Rising interest rates can cause the reverse.
Is positive cash flow the same as positive gearing? Essentially yes in common usage, though technically cash flow includes all cash in and out (including loan repayments, not just interest) while gearing calculations typically focus on income vs deductible expenses.
This article provides general financial information only. For advice tailored to your situation, speak with a licensed financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.