The Easiest Way to Structure a Positive Gearing Strategy

What Makes an Investment Loan Positively Geared

A positively geared investment loan generates more rental income than the total cost of holding the property, including loan repayments, insurance, rates and property management fees. The surplus income is taxable in the year it is received.

In Wantirna, dual-income properties, particularly those zoned for multiple occupancy or offering granny flat potential, can support positive cash flow where the combined rental return exceeds the holding costs. A property purchased with a 30 per cent deposit and structured on principal and interest repayments at current variable rates might produce a small weekly surplus, particularly if purchased below median value or with additional rental streams. For properties held before 12 May 2026, all borrowing costs remain fully deductible against other income. For established properties purchased after that date, any holding cost shortfall can only offset income from other residential properties from the 2027-28 income year onwards, which makes positive cash flow structuring more relevant for investors building portfolios without existing property income.

Consider an investor who purchases a dual-occupancy property near Wantirna South, with the main dwelling returning $600 per week and a secondary dwelling contributing $350 per week. The combined weekly income of $950 covers loan repayments of $720 per week on a loan amount of $550,000, plus holding costs averaging $130 per week. The property generates a small surplus each week, and the investor pays income tax on that surplus at their marginal rate. This structure suits buyers prioritising immediate cash flow over long-term capital growth or tax offsets.

How Deposit Size Changes the Cash Flow Outcome

A larger deposit reduces the loan amount, lowers weekly repayments and improves the likelihood of achieving positive gearing. An investor borrowing 70 per cent of the purchase price will have lower repayments and a better chance of rental income covering all costs than an investor borrowing 90 per cent on the same property.

For investment loans in Wantirna, a 30 per cent deposit is often the threshold where positive gearing becomes achievable on properties with strong rental yields. Properties closer to transport nodes, such as those near Wantirna Mall or within walking distance of Bayswater Station, tend to attract stable tenant demand and can support slightly higher weekly rents relative to purchase price. Borrowing at an LVR above 80 per cent typically requires Lenders Mortgage Insurance, which adds to the upfront cost and extends the time required to reach positive cash flow. Where an investor has access to equity in an existing property, leveraging that equity to increase the deposit on the new purchase can shift the investment from negatively geared to neutral or positive.

We regularly see investors who prioritise reducing the loan amount over maximising leverage, particularly where they are approaching retirement or prefer not to rely on offsetting losses against wage income. The trade-off is lower borrowing power and reduced portfolio growth potential, but the outcome is a property that pays for itself from day one.

Principal and Interest Versus Interest Only Structuring

Interest only repayments reduce monthly costs and can make it easier to achieve positive cash flow in the short term. Principal and interest repayments build equity over time but increase the weekly cost, which can push the property into negative gearing unless the rent is high enough to cover the difference.

For investors purchasing established property in Wantirna after 12 May 2026, interest only structures may appear attractive because they reduce holding costs, but the absence of principal reduction means the investor is not building equity during the interest only period. Interest only periods on residential investment loan products are typically limited to five years, after which the loan reverts to principal and interest. At that point, repayments increase substantially. An investor relying on positive cash flow during the interest only period may find the property becomes negatively geared once principal repayments commence, and under the new rules, those losses can only offset other residential property income from the 2027-28 income year onwards.

Principal and interest structuring from the outset provides certainty. The repayments remain consistent throughout the loan term, the investor reduces the loan balance each year, and the cash flow position improves over time as rents increase and the loan balance falls. Where an investor is confident the property will remain positively geared even with principal and interest repayments, that structure is generally preferable for long-term portfolio stability.

Fixed Versus Variable Rate Selection for Positive Cash Flow

A fixed rate locks in repayments for a set period, which provides certainty for budgeting and protects against rate increases. A variable rate allows repayments to fall if rates decline, but exposes the investor to higher costs if rates rise.

For positively geared properties, fixed rates can protect the cash flow margin. If an investment property in Wantirna generates a $50 weekly surplus at current variable rates, a 1 per cent rate increase could eliminate that surplus entirely. Fixing the rate for three to five years preserves the positive gearing structure and removes the risk of the property shifting into negative territory. The trade-off is less flexibility. Fixed rate loans generally do not permit additional repayments beyond a small annual threshold, and breaking a fixed loan before the term ends can trigger significant costs.

Variable rates suit investors who expect rates to decline or who value the ability to make additional repayments and access offset accounts. Offset accounts reduce the interest charged on the loan without reducing the deductible interest, which can improve after-tax returns. However, offset balances do not reduce the loan amount for the purpose of calculating the loan to value ratio under prudential standards, so they provide no capital benefit when refinancing or applying for additional lending. Where an investor's primary goal is maintaining positive cash flow and they are comfortable with some rate risk, a variable rate with an offset facility often delivers the most flexibility.

Selecting the Right Property Type in Wantirna

Properties that generate higher rental yields relative to purchase price are more likely to support positive gearing. In Wantirna, this typically includes townhouses, units near transport and retail precincts, and dual-occupancy properties that can accommodate multiple tenants or separate rental agreements.

Wantirna's proximity to Westfield Knox, EastLink and the Belgrave and Lilydale rail lines makes it attractive to tenants working in both the eastern suburbs and the Melbourne CBD. Properties within a short walk of Wantirna Mall or Bayswater Station tend to achieve slightly higher rents and lower vacancy periods than those requiring a car for all amenities. Unit developments near Mountain Highway and older-style townhouses with low body corporate fees can deliver rental returns that cover holding costs where the purchase price remains below the suburb median.

Investors targeting positive gearing should focus on properties that appeal to long-term tenants rather than short-term or holiday renters. Properties with two bathrooms, secure parking and low maintenance requirements tend to attract stable occupancy and reduce the frequency of vacancy periods, which protects the positive cash flow structure. Avoid properties with high body corporate levies, significant deferred maintenance or features that narrow the tenant pool, such as properties requiring extensive landscaping upkeep or those located on busy main roads without noise mitigation.

Borrowing Capacity and Serviceability Under Current Lending Rules

Lenders assess borrowing capacity by applying a serviceability buffer of at least 3 percentage points above the loan product rate. For investment loans, rental income is typically assessed at 80 per cent of the full rental amount to account for vacancy periods and management costs.

From 1 February 2026, lenders can provide no more than 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. An investor earning $120,000 per year with total borrowings, including the proposed investment loan, exceeding $720,000 will fall within that threshold and may face additional scrutiny or reduced borrowing capacity. The DTI limit applies separately to investor and owner-occupier lending, so existing owner-occupier debt does not count toward the investor DTI threshold, but all investment debt does.

For positively geared properties, the rental income reduces the net cost of holding the property and can improve serviceability. However, lenders assess rental income at a discount and apply the serviceability buffer to the gross interest rate, which means the investor must demonstrate capacity to service the loan at a rate significantly higher than the actual rate being charged. An investor with limited surplus income or high existing debt may find it difficult to qualify for additional lending even where the proposed property would be positively geared at the actual interest rate.

Tax Treatment and Surplus Income Reporting

Positive gearing means the property generates assessable income after all deductible expenses are accounted for. That surplus is added to the investor's other taxable income and taxed at their marginal rate.

For properties held before 12 May 2026, all interest and holding costs remain fully deductible, and any surplus is simply reported as net rental income on the investor's tax return. For properties purchased after that date, the deduction rules change from the 2027-28 income year. Interest and holding costs remain deductible, but only against residential property income. Where a property is positively geared, those deductions reduce the taxable surplus from that property. Where an investor holds multiple properties and one is positively geared while another is negatively geared, the loss from the negatively geared property can offset the income from the positively geared property, but cannot offset wage or business income.

Investors should model the tax impact before purchasing. A property generating $5,000 annual surplus might appear attractive, but if the investor's marginal tax rate is 37 per cent, the after-tax surplus reduces to $3,150. That after-tax figure should be compared against the capital growth potential and the investor's broader portfolio goals. Positive gearing prioritises cash flow and reduces reliance on future capital growth, which suits investors seeking regular income or those concerned about holding costs during periods of low wage growth or economic uncertainty.

When Positive Gearing Fits Within a Broader Portfolio Strategy

Positive gearing is not inherently superior to negative gearing. The right structure depends on the investor's income, time horizon, risk tolerance and portfolio composition. Investors with high marginal tax rates and strong wage growth may benefit more from negative gearing and capital growth. Investors approaching retirement, those with variable income or those seeking to build cash reserves may prioritise positive gearing and immediate surplus income.

In Wantirna, where median property values sit below Melbourne's inner suburbs but rental demand remains strong due to transport links and proximity to employment hubs, positive gearing is achievable with moderate deposits and disciplined property selection. An investor who purchases a property with a 30 per cent deposit, structures the loan on principal and interest terms, and targets a property with dual income potential can generate positive cash flow from the outset. That investor can then use the surplus income to build a deposit for a second property or to offset holding costs on a negatively geared property elsewhere in their portfolio.

We regularly see investors hold one positively geared property and one negatively geared property. The surplus from the positively geared property offsets the shortfall on the negatively geared property, reducing the overall cash drag on the portfolio while maintaining exposure to capital growth across both assets. This structure provides balance and reduces the reliance on wage income to fund the portfolio, which improves resilience during periods of income disruption or rising interest rates.

Understanding your goals, running the numbers with current rental and rate assumptions, and structuring the loan to suit your cash flow needs will determine whether positive gearing delivers the outcome you are looking for. Call one of our team or book an appointment at a time that works for you to discuss investment loan options tailored to your circumstances and the Wantirna property market.

Frequently Asked Questions