Positive Gearing & Investment Loans: What You Need to Know

Positive gearing means your rental income exceeds all holding costs including loan repayments, generating cash flow from day one.

For Brisbane investors working within new debt-to-income limits and facing quarantined rental losses from July 2027, this shifts the conversation from tax deductions to rental yield. A positively geared property puts money in your account each month rather than requiring you to top up the difference, and that changes both your borrowing capacity and your portfolio timeline.

Why Positive Gearing Matters Under the New Tax Rules

From 1 July 2027, rental losses on residential properties acquired after 12 May 2026 cannot be offset against salary or wages. Losses can only offset other rental income or be carried forward. If your first investment property runs at a loss, that loss sits idle unless you own other rental properties generating positive income. A positively geared property avoids this entirely because there is no loss to quarantine.

In our experience, investors who previously relied on negative gearing to reduce taxable income now need to recalculate whether a high-yield property with lower capital growth expectations delivers better wealth outcomes than a capital growth play that drains cash every month with no immediate tax relief.

Finding Positive Cash Flow in Brisbane's Rental Market

Rental vacancy rates in Brisbane's inner suburbs remain below 1.5 per cent, and in select outer growth corridors strong tenant demand supports rental yields above 5 per cent on the right property type. Units in precincts like Logan Central, Redbank Plains, and parts of Caboolture can deliver rental returns high enough to cover principal-and-interest repayments when structured correctly.

Consider a buyer who purchases a two-bedroom unit at a 20 per cent deposit with a principal-and-interest loan structured at current variable rates. Weekly rent of $480 generates annual income near $25,000. With body corporate fees around $4,000, council and water rates near $2,500, landlord insurance $600, and management fees at 7 per cent, total non-loan expenses sit near $8,000. Monthly principal-and-interest repayments on the loan need to fall below $1,400 to achieve positive cash flow. That threshold is achievable when deposit size, loan to value ratio, and investor interest rates align.

Interest-Only Versus Principal-and-Interest Repayments

Interest-only repayments reduce monthly outgoings and make positive gearing easier to achieve in the short term. Most lenders offer interest-only periods of up to five years on investment loans, with some extending to ten years for investors with substantial equity or portfolio depth.

The trade-off is straightforward: you pay less each month but build no equity through repayments, and when the interest-only period ends, repayments revert to principal-and-interest at a higher monthly cost. For investors planning to refinance, sell, or significantly increase rents within the interest-only window, this structure works. For those building long-term holds, principal-and-interest repayments lock in forced equity accumulation and avoid the repayment shock when the interest-only term expires.

Variable Rate or Fixed Rate for Positive Gearing

Variable rates give you access to offset accounts and the flexibility to make extra repayments without penalty, both useful if rental income exceeds expectations or you want to park surplus cash against the loan balance to reduce interest. Fixed rates lock in repayment certainty but typically come with higher break costs and limited offset functionality.

For positively geared investments, the offset advantage matters less because surplus cash flow can be directed elsewhere in the portfolio or held in an operational account. What matters more is whether you value certainty over flexibility. Rate discounts on investment loans are negotiable, and in the current environment investors with deposits above 20 per cent and established serviceability can access discounts that bring variable rates closer to advertised fixed terms.

Borrowing Capacity and Serviceability Under APRA Settings

APRA's debt-to-income caps, effective from February 2026, limit the proportion of new investor loans that ADIs can write above six times gross income. Lenders assess investment loan applications using a serviceability buffer three percentage points above the product rate, and rental income is typically shaded to between 70 and 80 per cent to account for vacancy, arrears, and maintenance.

A positively geared property improves serviceability because the net rental income after shading still contributes positively to your assessed position. If you are approaching debt-to-income limits or borrowing across multiple properties, demonstrating positive cash flow on existing holdings can unlock additional capacity that a negatively geared portfolio would constrain. When expanding your property portfolio, lenders weigh both your income and your portfolio's aggregated rental performance.

Structuring the Loan to Preserve Deductibility

Interest is only deductible to the extent the borrowed funds are used to acquire or hold the investment property. If you redraw funds from the investment loan for private purposes, the interest on that portion becomes non-deductible even though the security remains the investment property.

The solution is to structure each investment loan as a standalone split with its own offset account, and never mix private and investment funds within the same loan account. If you plan to access equity later for a subsequent purchase, establish a separate split at the time of release rather than redrawing from the original investment loan. This preserves full deductibility and keeps the tax position transparent when preparing rental schedules.

Maximising Tax Deductions on a Positively Geared Property

Even when rental income exceeds expenses, all claimable expenses remain deductible: loan interest, council and water rates, landlord insurance, body corporate fees, property management, repairs and maintenance, depreciation on plant and equipment, and capital works deductions on the building structure where available.

A positively geared property does not eliminate tax deductions, it simply means deductions do not exceed income. The net rental profit is added to your assessable income and taxed at your marginal rate. For high-income earners, this reduces the after-tax benefit compared to negative gearing, but for investors prioritising cash flow and portfolio scalability, the trade-off is deliberate.

When Positive Gearing Fits Your Investment Strategy

Positive gearing suits investors who need passive income now, who are approaching lending limits and cannot afford to service additional negatively geared assets, or who want to build a self-funding portfolio that does not rely on salary top-ups. It also suits retirees transitioning out of employment income and investors who want portfolio growth without increasing financial stress.

If your strategy prioritises capital growth in tightly held blue-chip suburbs, positive gearing may not be achievable without sacrificing location. If your strategy is to accumulate multiple properties over a compressed timeline and rely on compounding equity growth, positive cash flow accelerates deposit accumulation and borrowing headroom. The right structure depends on your income, risk tolerance, time horizon, and whether you are buying your first investment property or adding to an established portfolio.

Call one of our team or book an appointment at a time that works for you. We structure investment loan options around your wealth timeline, not just the next purchase.

Frequently Asked Questions