What makes an investment loan positively geared?
A positively geared investment loan is one where the rental income you receive exceeds all the property holding costs, including loan repayments, rates, insurance, and property management fees. The surplus income becomes taxable, but you hold a property that pays for itself while building equity.
Consider a buyer looking at a property in Frankston where the rental return is strong enough to cover a principal-and-interest repayment from day one. That borrower needs to think differently about deposit size, loan structure, and property selection compared to someone planning a negatively geared strategy. If the rental income falls short even slightly, the loan stops being positively geared and the investor carries the shortfall.
In our experience, positive gearing works when the deposit is large enough to keep repayments low, the property type attracts reliable tenants, and the loan structure matches the income you actually receive. A unit near Bayside Shopping Centre or a renovated house close to Frankston Hospital might deliver stronger rental returns than a dated property further from transport and services, but the purchase price and ongoing demand determine whether the numbers hold.
How deposit size affects cash flow from day one
The larger the deposit, the smaller the loan amount and the lower your repayments. For an investment loan to be positively geared, you need rental income to exceed all costs, so a deposit of 30 per cent or more often makes the difference between breaking even and holding a cash-flow-positive asset.
Lenders generally require LMI on residential loans where the LVR exceeds 80 per cent. If you borrow at 90 per cent LVR, the LMI premium adds to your upfront cost and increases the loan amount if you capitalise it, which pushes repayments higher and makes positive gearing harder to achieve. A 20 per cent deposit avoids that cost entirely, and a 30 per cent deposit gives you a lower rate and smaller repayments that rental income can comfortably cover.
As an example, a buyer purchasing an investment property with a 35 per cent deposit might find that rental income of $550 per week covers the principal-and-interest repayment, council rates, insurance, and management fees, leaving a small surplus each month. That same property purchased with a 10 per cent deposit would require a much larger loan, higher repayments, and the rental income would no longer cover the cost.
Principal and interest versus interest-only for positive gearing
Principal-and-interest repayments reduce the loan balance over time and build equity faster, but the repayment amount is higher than interest-only. For positive gearing, the choice depends on whether the rental income can cover the full repayment.
If rental income is $600 per week and a principal-and-interest repayment is $520 per week after rates and other costs, the property is positively geared and you build equity with every payment. If you switch to interest-only to reduce the repayment to $380 per week, the surplus increases but the loan balance stays the same for the interest-only period. Some investors prefer the higher cash flow from interest-only in the early years, then switch to principal and interest once rents increase or the loan balance reduces through other contributions.
Under APS 112, interest-only loans generally attract higher risk weights than principal-and-interest loans at the same LVR, which can affect pricing. That means lenders may charge a slightly higher rate on interest-only investment loans, which reduces the cash flow benefit. Borrowers looking at positive gearing need to compare the actual repayment difference and the impact on surplus income before deciding.
Variable or fixed rates when rental income is covering costs
Variable rates allow you to make extra repayments and redraw funds without penalty, while fixed rates lock in your repayment amount for a set period. For a positively geared investment loan, the stability of a fixed rate can make budgeting simpler, but you lose flexibility if your circumstances change.
If you fix the rate and rental income continues to cover repayments, the loan continues to perform as planned. If the rental market softens or you experience a vacancy, a variable loan lets you pause extra repayments or redraw surplus funds if you have built a buffer. Some investors split the loan between variable and fixed to get both stability and flexibility, which works well when rental income is reliable but not guaranteed.
Rental vacancy in Frankston varies depending on property type and location. A modern unit close to the station or a family home near quality schools typically attracts tenants faster than older stock further from services. The longer a property sits vacant, the more cash flow you lose, so property selection and loan structure need to account for realistic occupancy rates.
Tax treatment of positive gearing under current rules
Interest on borrowings used to acquire or hold residential rental property is deductible against assessable income to the extent the property is rented or held to produce assessable income. When the property is positively geared, rental income exceeds deductible expenses, so you pay tax on the surplus.
For properties held at 12 May 2026, losses continue to be fully deductible against other income until the property is sold. For established properties acquired after that date, losses from the 2027-28 income year onward can only be offset against other residential property income. Positive gearing avoids that restriction entirely because there is no loss to quarantine.
The rental surplus is added to your taxable income each year, so if you earn a salary and the property generates $5,000 in surplus income after all deductions, that $5,000 is taxed at your marginal rate. Some investors find that the tax paid on positive cash flow is offset by the equity growth and the fact that the property is paying for itself without requiring contributions from other income.
Refinancing to maintain positive cash flow as circumstances change
A loan that was positively geared at settlement can stop being positive if rates rise, rental income falls, or holding costs increase. Refinancing lets you restructure the loan to restore cash flow or release equity for further investment without selling the property.
If you have held the property for several years and built equity through capital growth and repayments, refinancing to a lower rate or extending the loan term can reduce repayments enough to make the property positively geared again. Alternatively, if the property has increased in value and you want to keep it as part of a broader investment loan strategy, refinancing lets you access equity while keeping the original loan in place.
Timing matters. If your fixed rate is about to expire, reviewing your options before the expiry date gives you time to compare rates and negotiate terms. If you wait until after the loan has rolled to a higher variable rate, the repayments may already be higher than rental income and the property is no longer positively geared.
Choosing the right property and location for rental yield
Positive gearing depends on rental income exceeding costs, so the property type and location determine whether the strategy works. A property in Frankston close to public transport, schools, and shopping precincts will generally rent faster and for more than a comparable property in a less connected area.
Units near the Frankston line or within walking distance of the beach often attract young professionals and downsizers who value convenience and are prepared to pay for it. Family homes in pockets near St Paul's Anglican Grammar School or Frankston High School appeal to long-term tenants who value stability, which reduces vacancy risk and supports consistent cash flow. Properties that require significant maintenance or are located further from services may offer a lower purchase price but also deliver lower rent, making positive gearing harder to achieve.
Before committing to a property, get a rental appraisal from a local property manager who knows the Frankston market. Compare that figure to your projected repayments, rates, insurance, and management fees. If the rental income does not cover the total cost, the loan will not be positively geared unless you increase the deposit or find a different property.
Building wealth without relying on capital growth alone
Positive gearing creates a property investment that generates income from day one, which means you are not solely dependent on capital growth to see a return. The rental surplus can be saved, reinvested, or used to pay down the loan faster, and the property continues to build equity regardless of short-term market movements.
For investors who want to build a portfolio over time, positive gearing makes it easier to hold multiple properties because each one contributes to cash flow rather than requiring ongoing top-ups. That approach suits borrowers with steady income who want to build wealth through property without stretching their budget or relying on future price increases to make the investment worthwhile.
Call one of our team or book an appointment at a time that works for you. We'll help you structure an investment loan that matches the rental income you can rely on and the property goals you're working toward.
Frequently Asked Questions
What is a positively geared investment loan?
A positively geared investment loan is one where the rental income you receive exceeds all the property holding costs, including loan repayments, rates, insurance, and property management fees. The surplus income is taxable, but the property pays for itself and builds equity over time.
How much deposit do I need for a positively geared investment property?
A deposit of 30 per cent or more generally makes positive gearing achievable because it reduces the loan amount and keeps repayments low enough for rental income to cover all costs. A smaller deposit increases borrowing costs and makes it harder for rental income to exceed expenses.
Should I choose principal and interest or interest-only for a positively geared loan?
Principal-and-interest repayments build equity faster but are higher than interest-only. If rental income covers the full principal-and-interest repayment, that option builds wealth while maintaining positive cash flow. Interest-only can increase surplus income in the short term but does not reduce the loan balance.
How does positive gearing affect my tax?
When a property is positively geared, rental income exceeds deductible expenses, so you pay tax on the surplus at your marginal rate. The tax paid on positive cash flow is often offset by the fact that the property is paying for itself and building equity without requiring ongoing contributions.
Can I refinance an investment loan to restore positive cash flow?
Yes, refinancing lets you restructure the loan to a lower rate or longer term, which can reduce repayments enough to make the property positively geared again. Refinancing can also release equity for further investment without selling the property.
