The Pros and Cons of Positive Geared Investment Loans

What Is a Positive Geared Investment Loan?

A positive geared investment loan finances a rental property where the rental income exceeds all holding costs, including loan repayments, rates, insurance, and property management fees. The surplus is taxable income in your hands.

This approach appeals to investors who want immediate cash flow rather than relying on long-term capital growth alone. In Bacchus Marsh, where rental demand has remained solid among families relocating from Melbourne and workers servicing the growing industrial precinct along Pentland Hills Road, positive gearing is achievable if you structure the purchase and loan correctly.

The distinction between positive and negative gearing comes down to what you prioritise. Negative gearing delivers tax deductions now by offsetting rental losses against your other income, but it requires you to fund the shortfall each week. Positive gearing delivers taxable income now and removes the need to subsidise the property from your own pocket. Neither is inherently superior. The right choice depends on your income, deposit size, and whether you need the property to support itself from day one.

The Cash Flow Advantage in Bacchus Marsh

Positive cash flow means the property pays for itself and adds to your disposable income each month.

Consider a scenario where an investor purchases a three-bedroom house in one of the established pockets near Darley Park. The property rents at the current local rate for that type of dwelling. The investor has a 30 per cent deposit, reducing the loan amount and the weekly repayment. At current variable rates, the repayment on the remaining balance is lower than the weekly rent. After accounting for council rates, insurance, property management fees at around 7 per cent of rent, and routine maintenance, the property delivers a small weekly surplus. That surplus is assessable income, but it also means the investor is not reaching into their salary each month to cover a gap.

This structure works particularly well for retirees or semi-retirees who want investment loans to deliver income rather than tax deductions. It also suits buyers who are at or near their borrowing capacity and cannot afford to service a property that runs at a loss.

Interest Rate and Loan Structure Considerations

The loan structure you choose will directly affect whether the property remains positively geared.

Variable rate loans currently sit lower than fixed rates in many cases, and they allow additional repayments and offset account access without restriction. A positively geared property on a variable rate gives you flexibility to park surplus cash in an offset account, reducing the interest charged and increasing the net cash flow further. Fixed rate loans offer certainty, but if rates fall during the fixed period, you may be paying more than necessary and limiting your ability to adjust the loan without incurring break costs.

Interest-only repayments can increase positive cash flow in the short term by reducing the regular repayment amount. The interest remains deductible, and the lower repayment can turn a marginal property into a positively geared one. The trade-off is that you are not reducing the loan balance, and when the interest-only period ends, the switch to principal and interest repayments will increase your outgoings. That shift can push the property back into negative gearing unless rental income has risen sufficiently in the meantime.

We regularly see investors in Bacchus Marsh who assume that interest-only is the default structure for investment loans. It is not. Principal and interest repayments reduce your debt over time and improve your equity position, which becomes important if you plan to refinance or access equity for a second property. The right structure depends on your income stability, your other commitments, and whether you plan to hold the property for five years or thirty.

Deposit Size and Loan to Value Ratio

The size of your deposit determines your loan amount, your repayment, and whether the property is positively geared.

A deposit of at least 20 per cent avoids Lenders Mortgage Insurance and keeps your repayment low enough that positive cash flow is achievable on most rental properties in Bacchus Marsh. A deposit below 20 per cent triggers LMI, which adds several thousand dollars to your upfront costs, and increases the loan amount you need to service. A larger loan means a higher repayment, and that repayment can exceed your rental income even on a well-priced property.

As an example, an investor with a 30 per cent deposit on a dwelling in the Darley or Maddingley area will have a significantly lower weekly repayment than an investor with a 10 per cent deposit on the same property. The difference in cash flow can be several hundred dollars per month. The investor with the smaller deposit may still achieve positive gearing if they use an interest-only loan or if rental income is high enough, but the margin is tight and vulnerable to rate rises or vacancy periods.

Your deposit also affects your access to rate discounts. Lenders typically reserve their sharpest investor interest rates for borrowers with a deposit of 20 per cent or more and a clean credit history. A lower deposit often means a higher rate, which further erodes cash flow.

Tax Treatment of Positive Geared Properties

Positive cash flow is taxable income, and that changes the after-tax return compared to a negatively geared property.

When a property delivers surplus income, that surplus is added to your assessable income and taxed at your marginal rate. If you are earning a salary in the 32.5 per cent or 37 per cent tax bracket, a portion of your rental surplus will be paid to the ATO. All deductible expenses, including loan interest, property management fees, council rates, insurance, repairs and depreciation, reduce your taxable rental income. If your deductions are high enough, they can bring the taxable portion down significantly, but they will not create a loss you can offset against your salary unless the property moves into negative gearing.

For properties acquired after 12 May 2026, the ability to offset rental losses against wage income is restricted from the 2027-28 income year unless the property qualifies as an eligible new build. Positive gearing avoids that restriction entirely because there is no loss to offset. The property supports itself, and you pay tax only on the surplus.

This makes positive gearing particularly relevant for investors entering the market now who want to avoid the new negative gearing limits and who do not want to rely on deductions against other income. It also suits investors in lower tax brackets, where the value of a tax deduction is limited.

Property Selection and Rental Yield in Bacchus Marsh

Not every property in Bacchus Marsh will deliver positive cash flow, even with a large deposit.

Rental yield is the annual rent divided by the purchase price, expressed as a percentage. A property with a higher yield relative to its price is more likely to be positively geared. In Bacchus Marsh, older three-bedroom homes on larger blocks in established areas often deliver stronger yields than newer estates where land and building costs are higher. Proximity to the railway station, schools, and the town centre affects rental demand, but it does not always correlate with yield. A property close to the station may command a premium purchase price that offsets the rental advantage.

Investors sometimes assume that new estates on the western edge of Bacchus Marsh will deliver better cash flow because the properties are modern and low-maintenance. In practice, the purchase price in those developments is often high enough that the rental yield is lower than in older parts of town. The property may attract tenants quickly, but the rent may not cover the repayment unless you have a deposit well above 20 per cent.

Vacancy rate also matters. A property that sits vacant for four weeks in a twelve-month period loses roughly 8 per cent of its annual rental income. In Bacchus Marsh, vacancy rates have been low in recent years, but that can shift depending on local employment trends and housing supply. A positively geared property with a thin margin can move into negative territory during a vacancy period, so you need a buffer.

When Positive Gearing May Not Suit Your Strategy

Positive gearing is not the right choice for every investor.

If you are in a high tax bracket and you have other income to shelter, a negatively geared property may deliver a better after-tax outcome by reducing your taxable income now and deferring the gain until you sell. The tax deduction from rental losses can be worth more to you than the cash flow from a positively geared property, particularly if you expect strong capital growth over time.

Positive gearing also limits your ability to leverage. A large deposit reduces your loan amount and improves cash flow, but it also ties up equity that could be used to purchase a second property. If your goal is portfolio growth rather than immediate income, you may prefer to use a smaller deposit, accept negative gearing on multiple properties, and rely on capital growth to build wealth over a longer period.

For investors who plan to hold properties for decades and who value certainty and low maintenance, positive gearing offers a clear path. For investors who are comfortable with short-term cash flow pressure in exchange for larger long-term gains, negative gearing may be more suitable. The choice depends on your income, your risk tolerance, and your timeline.

Refinancing and Loan Reviews for Positive Geared Properties

Rental income and loan rates change over time, and a property that is positively geared today may not be in two years.

Variable rate movements can shift your repayment by hundreds of dollars per month. If your property is delivering a small surplus now and your rate increases, the surplus can disappear. Running a loan health check at least once a year lets you confirm whether your current rate is still competitive and whether switching lenders or renegotiating your terms would restore positive cash flow.

Refinancing can also unlock better loan features that improve your position. Some lenders offer offset accounts on investment loans, others do not. If you have surplus cash sitting in a transaction account earning minimal interest, moving to a lender that offers a full offset can reduce your interest costs and increase your net cash flow without changing your rent or your deposit.

If your income has increased or your property has appreciated, refinancing may allow you to access equity and purchase a second property while keeping the first one positively geared. The key is to review the numbers regularly rather than assuming the loan you took out three years ago is still the right fit.

Call one of our team or book an appointment at a time that works for you. We will review your current position, confirm whether your loan structure still supports positive cash flow, and identify any adjustments that would improve your outcome over the next twelve months and beyond.

Frequently Asked Questions