Skip to content

Positive gearing: where it actually happens in Australia

Positive gearing - where rental income exceeds all expenses including interest - has become rarer in Australia since 2020. It still exists, and it sometimes delivers better long-term returns than negatively geared “tax minimiser” strategies.

The two ways positive gearing happens

1. High-yield purchase at low LVR. Buy a regional property at 6-7% gross yield with 50% LVR. Rental income covers interest with meaningful surplus.

2. Long-hold property that’s been paid down. Original purchase was negatively geared, but after 10-15 years of amortisation, the loan balance is small relative to rent. Now positively geared organically.

Most “positive gearing strategies” in 2026 are Type 1 - deliberately chasing high-yield regional or specialist property.

Where positive gearing actually lives

  • Regional centres over 50km from capital cities: 5.5-7.5% gross yields common. Bathurst, Dubbo, Rockhampton, Bundaberg, Geraldton.
  • Mining towns: historically 10%+ yields but high capital risk. Mt Isa, Gladstone, Karratha.
  • Specialist property: student accommodation, NDIS-approved housing, serviced apartments. Yields 7-12% but lender pool is thin.
  • Small units under $350k in older stock: 5.5-7% yields, but capital growth trails.
  • Strata-titled industrial or retail: commercial, not residential, but similar mechanics.

The math at 6.5% yield, 60% LVR

$450,000 property, $292,500 loan at 6.5% investment rate:

  • Rent: $29,250/year (6.5% gross)
  • Interest: $19,013/year
  • Property expenses: $3,500/year
  • Depreciation: $3,000/year
  • Total cash outflow: $22,513
  • Net rental surplus: $6,737/year (pre-tax)

After tax at 37% marginal rate: $4,244 positive net cash flow.

Compare to a negatively geared $700k property with $50k of annual loss:

  • Pre-tax: -$50,000
  • Post-tax: -$31,500 (after $18,500 tax offset)

The positively geared property has a +$4,244 net; the negatively geared has -$31,500 net. On pure cash flow, positive gearing wins decisively.

What positive gearing costs you

Capital growth exposure: positively geared properties tend to be in lower-growth locations. Regional centres and mining towns have averaged 2-4% long-term capital growth vs 4-6% for inner-ring metro. Over 10 years, the gap is substantial.

Lender constraints: some regional postcodes, smaller properties, and specialist types attract higher LVR caps, higher interest rates, or policy restrictions.

Tenant risk: regional and specialist properties often have longer vacancy periods, higher tenant default rates, or specific single-tenant dependency.

When positive gearing is the right strategy

  • You’re at low-to-middle marginal tax rate where negative gearing tax offset is small
  • You need portfolio cash flow to support further purchases or debt service
  • You’re optimising for retirement income rather than capital growth
  • You have already captured capital growth in a separate portfolio (principal residence, shares, super)
  • You want protection against interest rate rises (positive cash flow holds up)

When it’s the wrong strategy

  • You’re at top marginal tax rate (37-47%) and want to defer income tax
  • You believe in capital growth as the primary return driver
  • You have limited diversification - all your property is in regional Australia

The optimal portfolio usually mixes both: negatively geared metropolitan capital-growth properties + positively geared regional cash-flow properties. The combination reduces volatility and improves total return vs either in isolation.