A positively geared investment property generates enough rental income to cover your loan repayments and running costs, leaving you with cash in your pocket each week.
That immediate income appeals to plenty of investors, particularly those who want to hold property without relying on their salary to subsidise the investment or who are planning for retirement. With rental yields holding firm across parts of regional Victoria and some metro locations, positive gearing is becoming a more realistic option for investors who know where to look and how to structure the purchase.
Rental Yield Drives Positive Cash Flow
Positive gearing happens when your rental income exceeds the total cost of holding the property, including loan interest, rates, insurance, maintenance and any body corporate fees. The difference between what you collect and what you pay determines whether you pocket cash each month or need to top up the shortfall.
Consider an investor who buys a two-bedroom unit in Ballarat at the suburb's current median. With a 20 per cent deposit and rental income of around $400 per week, the property generates roughly $20,800 per year. If the investor takes out a loan at current variable rates on an interest-only basis for five years, annual interest sits around $16,000. Add council rates, landlord insurance, management fees and maintenance, and total holding costs come to approximately $19,500. The property delivers a surplus of about $1,300 per year before tax, making it positively geared from day one.
That surplus gives the investor breathing room. There's no need to draw on savings or salary to cover a shortfall each month, which matters if income fluctuates or if other expenses arise. The cash flow also becomes useful when assembling a second or third property, because lenders assess serviceability based on net rental income, and a positive position strengthens borrowing capacity.
Interest-Only Periods Lower Your Outgoings
Switching from principal and interest repayments to interest-only repayments reduces your monthly loan cost, which directly improves cash flow on an investment property. Most lenders in Australia offer interest-only terms of up to five years for investors, with some extending to ten years depending on loan to value ratio and income.
An investor holding a property in Bendigo with a loan amount of $400,000 would pay around $2,900 per month on principal and interest at current variable rates over 30 years. On an interest-only arrangement, that figure drops to roughly $1,350 per month. The difference of $1,550 per month changes whether the property remains cash-flow neutral or tips into positive territory, especially when rental income sits in the mid-$400s per week.
Interest-only periods suit investors who want to maximise cash flow in the early years, either to fund further property purchases or to manage other financial commitments. Once the interest-only term ends, repayments revert to principal and interest, and the loan balance starts to reduce. Investors who plan to sell or refinance before that reversion often use interest-only as a deliberate strategy to keep more capital available for portfolio growth.
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Where Positive Gearing Works in Victoria
Regional centres and some outer metro suburbs deliver the rental yields that support positive cash flow. Ballarat, Bendigo, Shepparton and Wodonga consistently show gross rental yields above 5 per cent, which creates room for surplus income once you account for interest and holding costs.
In metro Melbourne, positive gearing becomes harder to achieve in the inner and middle rings, where property values have climbed faster than rents. Suburbs like Werribee, Pakenham and Melton offer better yield prospects, particularly for houses and townhouses that appeal to families. Units in established apartment precincts near transport hubs can also deliver yields that approach positive territory, especially when purchased below the suburb median or with a larger deposit that reduces the investment loan amount.
Vacancy rates matter just as much as headline yield. A property that sits empty for six weeks each year erodes your annual income and pushes you back toward neutral or negative gearing. Regional towns with stable employment, university populations or health services tend to show lower vacancy rates, which protects your income and keeps the property positively geared over time.
How Deposit Size Affects Your Cash Position
A larger deposit reduces your loan amount, which lowers your interest bill and improves cash flow. Investors who contribute 30 or 40 per cent upfront borrow less, pay less interest each month, and often achieve positive gearing on properties that would otherwise require a top-up.
An investor purchasing a property in Shepparton at the area's current median with a 20 per cent deposit borrows around $320,000. At current investor interest rates, annual interest on an interest-only loan sits near $13,000. Rental income of $380 per week delivers roughly $19,750 per year, leaving about $6,750 to cover rates, insurance, maintenance and management. The property may be neutral or slightly positive depending on actual costs.
If the same investor increases the deposit to 30 per cent, the loan drops to $280,000 and annual interest falls to around $11,400. That extra $1,600 in annual cash flow can shift the property from break-even to comfortably positive. The larger deposit also avoids Lenders Mortgage Insurance, which saves several thousand dollars upfront and further improves the return on the investment.
Tax Treatment Changes the Net Outcome
Positively geared properties generate assessable income, which means you pay tax on the surplus. Unlike negatively geared properties, where the loss offsets other income and reduces your tax bill, a positive property adds to your taxable income for the year.
An investor earning $90,000 in salary who receives $2,000 in net rental income after all deductions will pay tax on $92,000. At the marginal rate, that surplus attracts around $600 in additional tax. The investor still pockets $1,400 after tax, but the headline cash flow shrinks once the ATO takes its share.
Some investors accept the lower after-tax return because they prefer immediate income over deferred capital growth. Others structure their portfolio with a mix of positive and negative properties, using surplus income from one to offset shortfalls on another. The investment loan features you choose, including offset accounts and redraw facilities, can help manage cash flow and smooth out the tax impact across multiple properties.
Principal and Interest Builds Equity Faster
While interest-only loans improve short-term cash flow, switching to principal and interest repayments builds equity and reduces your debt over time. Investors who start with interest-only for the first five years often refinance to principal and interest once rental income rises or other properties in the portfolio are sold.
A property in Wodonga purchased with a $350,000 loan on interest-only terms will still owe $350,000 after five years. If the investor switches to principal and interest at that point, the loan balance begins to fall, and after another ten years of repayments, the debt may drop to around $240,000. That equity can be used to fund further purchases, either through equity release or as security for another investment loan.
Principal and interest repayments also reduce interest charges over the life of the loan, because you're paying down the balance each month. Investors focused on long-term wealth prefer this approach, even if it reduces cash flow in the short term, because it accelerates debt reduction and increases the net asset position at retirement.
Offset Accounts Preserve Flexibility
An offset account linked to your investment loan reduces the interest you pay each month without requiring you to make extra repayments into the loan itself. Every dollar in the offset reduces the loan balance used to calculate interest, which lowers your monthly cost and improves cash flow.
If an investor holds $20,000 in an offset account against a $400,000 loan, interest is calculated on $380,000 instead of the full amount. At current rates, that saves around $650 per year in interest. The cash remains accessible, so the investor can withdraw funds for maintenance, further deposits or personal expenses without needing to redraw from the loan.
Offset accounts suit investors who want to keep surplus rental income separate from personal funds while still reducing interest. Not all lenders offer offset on investment loans, and some charge a higher rate for loans with that feature, so you'll need to compare investment loan options to find a structure that balances cost and flexibility.
Vacancy and Maintenance Eat Into Surplus
A positively geared property only delivers surplus income when it's tenanted and maintained. Vacancy periods, unexpected repairs and property management fees reduce your net income and can push a positive property into neutral or negative territory for that year.
In regional Victoria, vacancy rates range from 1 to 3 per cent in centres with strong employment and infrastructure. A property vacant for two weeks each year loses roughly 4 per cent of annual rental income, which may be $800 to $1,000 depending on weekly rent. If the property was only just positive, that loss wipes out the surplus and leaves you covering costs from your own pocket.
Maintenance costs vary by property age and type. Older houses require more frequent repairs, while units with body corporate arrangements spread major costs across owners but add a regular quarterly fee. Investors targeting positive gearing often look for newer properties or those recently renovated, where maintenance is predictable and less frequent, and where depreciation schedules provide claimable expenses that improve the after-tax position.
How the 2027 Negative Gearing Changes Affect Strategy
From 1 July 2027, rental losses on residential properties purchased after 12 May 2026 can only be offset against other residential rental income, not against salary or wages. Properties that were already held, or under contract, before that date can still be negatively geared under the existing rules.
For investors entering the market now, positive gearing becomes more than a preference. It's a way to avoid being locked into a quarantined loss that can't reduce your tax bill. If a property you buy in late 2026 or 2027 runs at a loss, that loss carries forward and can only be used against future rental income or capital gains on residential property. If you don't own other rental properties, the loss sits unused until you sell.
Positive gearing removes that problem. You're not relying on a tax offset to make the investment viable, so the legislative change doesn't constrain your borrowing or reduce the pool of suitable properties. Investors who focus on regional Victoria, where yields support positive cash flow, are better positioned under the new rules than those chasing capital growth in low-yield metro markets.
Refinancing Locks In Lower Rates
Investors who secured loans in the past two years may be paying more interest than necessary. Refinancing to a lower rate improves cash flow and can shift a neutral property into positive territory without changing the property or the rent.
An investor with a $380,000 loan paying 6.2 per cent on a variable rate currently pays around $23,560 per year in interest on an interest-only basis. If that investor refinances to a lender offering 5.8 per cent, annual interest drops to $22,040, saving $1,520. That saving goes straight to the bottom line and improves the annual surplus.
Rate discounts vary by lender, loan size and deposit. Some lenders offer deeper discounts for loans above $500,000 or for investors with multiple properties. Others reserve their sharpest pricing for owner-occupiers. A broker who works across lenders can identify which institutions are competing for investor business and where the rate discount applies to your loan amount and circumstances.
Call one of our team or book an appointment at a time that works for you to discuss how positive gearing fits your portfolio and which properties across Victoria deliver the rental income to support it.
Frequently Asked Questions
What makes an investment property positively geared?
A property is positively geared when rental income exceeds all holding costs, including loan interest, rates, insurance, maintenance and body corporate fees. The surplus income is added to your taxable income for the year.
Which parts of Victoria offer the rental yields for positive gearing?
Regional centres like Ballarat, Bendigo, Shepparton and Wodonga consistently deliver gross rental yields above 5 per cent. Some outer metro suburbs including Werribee, Pakenham and Melton also support positive cash flow, particularly for houses and townhouses.
Does a larger deposit help achieve positive gearing?
Yes, a larger deposit reduces your loan amount and lowers the interest you pay each month, which improves cash flow. Investors who contribute 30 or 40 per cent upfront often achieve positive gearing on properties that would otherwise require a salary top-up.
How do the 2027 negative gearing changes affect positive cash flow strategies?
From 1 July 2027, rental losses on properties bought after 12 May 2026 can only offset other residential rental income, not salary. Positive gearing avoids this constraint because the property generates surplus income rather than a loss that needs quarantining.
Can I switch from interest-only to principal and interest later?
Yes, most investors start with interest-only for the first five years to maximise cash flow, then refinance to principal and interest once rental income increases or other portfolio changes occur. Principal and interest repayments build equity and reduce total interest over time.
