Confused about negative vs positive gearing in Australia for 2025-2026? Learn how cash flow, interest rates, tax, lender policy and market trends affect your investment property – and how a mortgage broker can help you choose the right strategy for your goals.
Key Takeaways
- Negative gearing means your rental income is lower than your loan and property costs (a loss), while positive gearing means your rent exceeds your costs (a profit) – both have different cash-flow and tax impacts.
- Location, purchase price and rental yields heavily influence whether a property is likely to be negatively or positively geared, with inner‑city “blue‑chip” properties often negative and regional/outer‑metro areas more likely neutral or positive.
- Higher interest rates in the recent years are pushing more properties into negative gearing: tax deductions can soften the loss but do not make a money‑losing property a good investment on their own.
- An experienced mortgage broker can model cash-flow scenarios, navigate lender policy and structure your loans to align with your gearing and tax strategy before you commit to a purchase.
Negative vs Positive Gearing in Australia: What It Really Means in 2024–25
Negative vs positive gearing is really about whether your investment property puts money
into your pocket each month or quietly drains it. In simple terms:
- Negatively geared property: Your rental income is less than your interest and property expenses, so you make a loss.
- Positively geared property: Your rental income is more than your costs, so you make a profit.
That monthly loss or profit doesn’t just affect your cash flow – it also changes how much tax you pay.
| Type of gearing | Cash flow impact | Tax impact |
|---|
| Negative gearing | Costs > rent (you top up each month) | Loss may reduce your taxable income and overall tax bill |
| Positive gearing | Rent > costs (surplus each month) | Profit is added to your income and taxed at your rate |
This is why gearing is such a hot topic with Australian property investors. Some are comfortable with short‑term losses if they expect strong capital growth and tax benefits. Others prefer investments that pay for themselves from day one. Understanding which side you’re on and why is essential before you commit to a new loan or investment strategy. In today’s market,
where you buy and what you pay play a big role in whether a property is likely to be negatively or positively geared.
- Inner‑city, higher‑value units and townhouses often have lower rental yields and higher body corporate and holding costs, so they are more often negatively geared.
- Outer‑suburban, regional properties, specialised properties such as Co-Living or NDIS can have higher rental yields so they are more likely to be neutrally or positively geared.
| Property type | Price | LVR | Likely cash-flow position* |
|---|
| Capital‑city unit (inner ring) | $800k | 90% | Often cash‑flow negative each month |
| Regional or Specialised properties | $500k-$800k | 80% | Often Cashflow positive |
The same borrowing power can produce very different cash‑flow outcomes depending on the location, purchase price and rental yield.
If you’re weighing up a higher‑growth city property versus a higher‑yield regional property, it’s critical to run the numbers on:
- Monthly cash flow (before and after tax)
- Risk if interest rates rise
- How long you can comfortably hold a negatively geared asset
If you’d like personalised projections for your borrowing capacity and cash‑flow in 2025-2026 based on your situation, speak with our team before you sign a contract.
How Cash Flow, Interest Rates and Tax Interact in Investment Property Gearing
Understanding the basic cash flow formula For Australian property investors, gearing outcomes ultimately come back to a simple equation:
Rental income − Interest costs − Other running costs = Property cash flow (before tax)
This is the engine behind whether your investment is
positively geared (putting money in your pocket) or
negatively geared (costing you money each year). Even small changes in any of these three levers can quickly flip a property from positive to negative, or vice versa:
- Rental income: vacancy, market rent changes, or re‑negotiating a lease
- Interest costs: rate rises or falls, switching lenders, fixing vs variable
- Running costs: strata, insurance, maintenance, property management, land tax
When you understand this formula, you can start testing “what if” scenarios before you buy, refinance or renovate. That’s where a mortgage broker can help you model different interest rate and cash flow outcomes so you’re not relying on guesswork.
What today’s higher interest rates mean for your tax position With the RBA cash rate sitting around
4.35%, most investment loans are pricing between
5.7% and 7.0% p.a. While national rents and yields have increased, the jump in interest costs has pushed many formerly neutral or positive properties into
negative gearing territory.
| Scenario | Annual Result Before Tax | Tax Effect* | After‑Tax Outcome |
|---|
| Negatively geared | −$11,760 (loss) | Tax refund on that deductible loss | Net loss reduced, but still a cost |
| Positively geared | +$11,760 (profit) | Income tax payable on profit | You keep a reduced, but real surplus |
*Exact tax impact depends on your marginal tax rate. Key takeaways for investors:- A tax refund does not make a loss “good” – it only softens the blow.
- Positive cash flow is still attractive even after tax, because it boosts your borrowing capacity and buffers.
- Rising interest rates can quietly erode your buffer; regular reviews of your loan structure, rate and rental strategy are essential.
If you’re unsure whether your property has slipped from positive to negative – or how a rate change could affect your after‑tax position – it’s worth running the numbers with a broker before your next big decision.
Pros and Cons: Cash Flow Today vs Potential Investment Growth Tomorrow
When building a property portfolio in Australia, investors are often choosing between
better cash flow today or
stronger potential growth tomorrow. This trade‑off usually shows up in the decision between
negative gearing and
positive gearing strategies.
| Strategy | Cash Flow Impact | Typical Property Type | Main Risk |
|---|
| Negative gearing | Often costs you money each month | Blue‑chip, inner‑ring or growth suburbs | Ongoing out‑of‑pocket costs and rate rises |
| Positive gearing | Usually puts money in your pocket | Regional, outer‑metro, higher‑yield | Slower or more volatile capital growth |
Both approaches can work well
if they align with your income, risk tolerance and long‑term goals. The key is understanding how each one affects your cash flow, borrowing power and tax position before you sign a contract.
Negative gearing: prioritising long‑term growth Negative gearing lets higher‑income investors access
blue‑chip, capital‑growth suburbs where the rent doesn’t fully cover the mortgage and costs. The shortfall can be claimed as a tax deduction, but:
- You need strong surplus income and cash buffers to cover the gap.
- Rising interest rates or long vacancies can quickly increase your out‑of‑pocket costs.
- It suits investors focused on long‑term capital growth, not immediate cash flow.
Positive gearing: boosting cash flow and resilience Positive gearing flips the equation: the rent more than covers your expenses, leaving
cash left over each month. This can:
- Improve day‑to‑day cash flow and lifestyle flexibility.
- Support borrowing capacity and help you hold properties during rate rises or vacancies.
- Come with trade‑offs, such as more modest or volatile capital growth and taxable rental profits each year.
Balancing both for a sustainable property portfolio Many Australian investors blend these strategies—for example, holding
one slightly negatively geared, higher‑growth property alongside
one solid, high‑yield property. This can:
- Smooth overall portfolio cash flow.
- Reduce the stress of rate movements.
- Keep you in the market long enough to benefit from growth cycles.
If you’re unsure which mix suits your situation, consider speaking with a mortgage broker who can model
cash flow, tax impact and risk under different scenarios before you commit.
Lender Policy and Market Trends Shaping Gearing Decisions in 2025-2026
Understanding how
lender policy and
market trends interact is critical when deciding between negative and positive gearing in Australia. Here’s how banks are currently assessing investment loans:
- Shaded rental income: Most lenders only count 70–80% of your actual rent to allow for vacancies and costs.
- Buffer rates: Your borrowing power is tested at 2.5–3% above your actual interest rate, not today’s rate.
- Tax add‑backs: Some lenders will add back a portion of your negative gearing benefits to slightly improve serviceability.
These settings mean a property that looks fine on your own spreadsheet can still fail the bank’s servicing test. Working with a broker who understands each lender’s policy can help match your strategy, whether you’re targeting cash‑flow, growth, or a balance of both—to the right bank. Recent shifts in the Australian property market are also reshaping gearing decisions:
| Trend (2024–25) | Impact on Gearing Decisions |
|---|
| Rising interest rates | More previously neutral properties now negatively geared |
| Rental crisis & tight vacancy rates | Stronger rents creating positive cash-flow in some regional/outer-metro areas |
| APRA serviceability settings | Harder to qualify, even where the numbers look acceptable on paper |
Example: An investor who bought a neutral‑cash‑flow unit in 2021 may now be negatively geared due to higher rates, while a well‑chosen regional house could be modestly positive thanks to rent growth. Because
negative gearing remains politically sensitive, future rule changes are always a risk. A prudent approach is to ensure your deals
stack up on pre‑tax numbers, with tax benefits treated as a bonus, not the backbone of the strategy. If you’d like help stress‑testing your portfolio under current lender policies and market conditions, a mortgage broker can model different scenarios and identify which lenders best support your gearing strategy.
Choosing the Right Property Investment Strategy and How a Mortgage Broker Can Help
Choosing the right gearing strategy – negative, neutral or positive – starts with understanding your own financial position, not the latest property headline. Before you decide how to structure your investment loan, take a clear look at:
- Cash-flow capacity: How much surplus income do you realistically have each month after living expenses?
- Income stability: Are you a salaried employee, contractor, self‑employed, or relying on bonuses/overtime?
- Time horizon: Are you investing for 5 years, 10 years, or to build a long‑term retirement portfolio?
- Risk tolerance: How comfortable are you with short‑term losses or fluctuating repayments?
- Exit strategy: Will you sell, refinance, or hold the property into retirement?
| Strategy Type | Typical Goal | Cash-Flow Impact |
|---|
| Negative gearing | Maximise growth, accept shortfall | Rent + tax benefits < costs |
| Neutral gearing | Balance growth and affordability | Rent + tax benefits ≈ costs |
| Positive gearing | Prioritise income and cash-flow | Rent > costs |
The right option for you depends on how much short‑term cash‑flow pressure you can handle in exchange for potential long‑term gains. Once your personal settings are clear, the strategy discussion becomes more practical and less emotional.
Key considerations to work through include:- Scenario modelling
- Best case: Strong rent, modest rate rises, no major repairs.
- Base case: Average rent, normal vacancies, standard maintenance.
- Worst case: Higher interest rates, longer vacancies, large repair bills.
Stress‑testing these scenarios helps you avoid being forced to sell at the wrong time. - Loan and ownership structureA broker can help you compare:
- Interest‑only vs principal & interest (P&I) for cash-flow vs long‑term debt reduction.
- Offset accounts to keep funds accessible while reducing interest.
- Ownership splits between partners to align with each person’s income and tax position.
- Risk managementAvoid chasing high advertised yields in single‑industry or remote towns, where values and rents can fall sharply if one employer or sector slows.
The best investment strategy is one you can comfortably hold through bad years, not just good ones.
As you compare properties, keep in mind that your
loan-to-value ratio (LVR) can affect your interest rate, which in turn influences whether your investment ends up negatively or positively geared. Structuring repayments wisely also matters – simple strategies like using offsets and extra repayments can help, and this is covered in more detail in our guide on
how to pay your home loan off quicker. If you are planning to add to your portfolio, your
credit score plays a major role in your borrowing power and which lenders you can access. This is especially important for investors who are self-employed, contractors or business owners – make sure you understand the
top lending tips for self-employed applicants before you apply. And before you commit to any new purchase, it’s wise to understand the
key things to keep in mind when applying for a loan pre-approval so your gearing strategy and finance plan stay aligned. A skilled Australian mortgage broker can:
- Run detailed cash-flow and serviceability modelling for different properties and loan types.
- Compare negative vs positive gearing outcomes side‑by‑side using your actual income and tax position.
- Structure your lending for flexibility – multiple splits, offsets, fixed/variable blends – and coordinate with your tax adviser before you sign a contract.
If you’d like tailored guidance on which gearing strategy fits your situation, speak with a broker early in your planning, not after you’ve already made an offer.
Disclaimer:
All information on this website is general in nature and not intended as financial, investment, legal, or tax advice. It may not suit your personal circumstances. You should seek independent professional advice before acting on any content. We accept no liability for actions taken based on this information.
