Avoid These 4 Positive Gearing Mistakes

Positive gearing is rental income that exceeds all holding costs on the property.

That sounds appealing in an environment where serviceability is tight and living costs are high, but the decision to chase immediate cash flow can derail your portfolio growth if you misunderstand what you are trading off. Brisbane investors looking at positive gearing in the current climate need to consider four structural mistakes that can reduce long-term wealth, even when the property delivers a surplus every month.

Mistake One: Overlooking the Loss of Tax Deductions on Surplus Income

Positive gearing means you pay tax on the surplus. If your rental income exceeds expenses by $5,000 in a financial year and your marginal tax rate is 37 per cent, you will pay $1,850 in tax on that surplus. The cash flow advantage you thought you had is reduced accordingly. Negatively geared properties allow you to offset the loss against other income, reducing your overall tax position. Once the property turns positive, that deduction disappears and you begin paying tax on rental profit, which reduces the net benefit of the cash surplus. This is not a flaw in positive gearing, it is a consequence of how the Australian tax system treats investment income, but many investors underestimate the impact until they lodge their return.

Consider an investor who buys a unit in Kedron, rents it for $550 per week and finances it with a 20 per cent deposit on a principal and interest loan at the current variable rate. The property generates a small surplus after loan repayments, council rates, insurance, body corporate and property management fees. At tax time, that surplus is added to their salary income and taxed at their marginal rate. The investor expected a $4,000 annual cash flow benefit but nets closer to $2,500 after tax. The mistake is not in choosing positive gearing, it is in planning cash flow without accounting for the tax liability that comes with it.

Mistake Two: Choosing High Yield Over Capital Growth Potential

Brisbane investors sometimes pursue positive gearing by targeting higher rental yields in outer suburbs or regional Queensland towns, sacrificing exposure to areas with stronger long-term capital growth. A property that delivers 6 per cent gross yield and 2 per cent annual growth will underperform a property delivering 4 per cent yield and 5 per cent growth over a ten-year hold, even after accounting for the cash flow difference. Wealth is predominantly built through equity accumulation, not monthly surplus. If your portfolio strategy depends on releasing equity to fund further purchases, choosing high yield over growth potential can limit your ability to expand your property portfolio in future.

In Brisbane, suburbs closer to the CBD, established infrastructure and employment hubs tend to deliver lower rental yields but stronger capital appreciation. A townhouse in Annerley may rent for 4.2 per cent gross yield, while a house in Caboolture may achieve 5.5 per cent. Over a decade, the difference in equity growth can exceed $200,000, depending on market conditions. Positive gearing that comes at the expense of growth is not a portfolio accelerator, it is a holding pattern with modest income.

Mistake Three: Ignoring the Impact of Legislative Changes on Deductibility

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, residential properties acquired on or after 7:30pm AEST on 12 May 2026 will face quarantined negative gearing from 1 July 2027. Net rental losses on those properties can only be offset against other residential rental income or carried forward, not against salary or wages. This does not directly affect positive gearing, but it changes the value of flexibility in your loan and repayment structure. If you structure a loan to generate a small surplus now and the property turns negative later due to vacancy, interest rate movement or maintenance costs, you cannot offset that loss against your employment income unless the property was acquired before the legislative cutoff. Investors who lock in principal and interest repayments to force positive cash flow may find themselves unable to adjust if market conditions shift and the property moves into loss.

If you are buying your first investment property and the purchase settled after 12 May 2026, your ability to switch to interest-only repayments later and deduct the loss is removed. The legislative change has made positive gearing a less flexible position than it was previously, because you cannot easily pivot to negative gearing without losing the tax benefit.

Mistake Four: Using Principal and Interest to Manufacture Positive Gearing at the Expense of Leverage

Some investors force positive gearing by choosing principal and interest repayments on an investment loan rather than interest-only. This reduces monthly expenses and creates a surplus, but it also means you are paying down non-deductible debt while leaving deductible debt in place. If you later want to access that equity for another purchase, you will need to refinance or apply for a top-up, and the additional borrowing may not be fully deductible depending on how the funds are used. Paying down principal on an investment loan when you still have an owner-occupied mortgage is a structural inefficiency that can cost you tens of thousands in lost deductions over the life of the portfolio.

Interest-only repayments keep your loan balance stable and maximise your deductible interest expense. They also preserve your borrowing capacity by keeping repayments lower, which improves your debt serviceability position when you apply for your next loan. A Brisbane investor with a $600,000 investment loan paying principal and interest at the current variable rate will make monthly repayments around $1,000 higher than the same loan on interest-only. Over five years, they will have reduced the loan balance by roughly $90,000, but that equity is now locked in the property and may require a formal application and valuation to access. If they had kept the loan interest-only and used the repayment difference to accelerate their owner-occupied mortgage, they would have reduced non-deductible debt instead and maintained full access to the equity in the investment.

Structuring for Long-Term Wealth, Not Short-Term Comfort

Positive gearing is a valid strategy when it aligns with your income needs, risk tolerance and portfolio stage, but it should not be pursued at the expense of growth, flexibility or tax efficiency. Brisbane investors entering the market now face a legislative environment that has reduced the flexibility of negatively geared properties acquired after May 2026, which makes the decision to lock in positive cash flow more consequential than it was two years ago. If you are choosing positive gearing because serviceability is tight, consider whether a different deposit size, loan structure or property selection would give you the same borrowing capacity without sacrificing future equity growth.

If you are comparing investment loan options and weighing up cash flow against capital growth, call one of our team or book an appointment at a time that works for you. We work with property investors across Brisbane who are building portfolios designed for long-term wealth, not just monthly surplus.

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