Positive gearing
When an investment property's rental income exceeds its deductible costs, creating taxable income.
- Rent is higher than costs, including interest
- The profit is added to your taxable income
- Helps cash flow and borrowing capacity
How it works
If rent exceeds interest and other costs, the surplus is taxable at your marginal rate. Higher-yield properties and lower debt make positive gearing more likely.
The trade-off
Higher-yield properties sometimes come with lower expected growth. Most portfolios balance both.
Positive cash flow makes a portfolio easier to hold and expand, especially under tighter lending limits.
Common questions
Is positive gearing better than negative gearing?
Neither is better on its own. It depends on your goals, income and timeframe.
Can a property become positively geared over time?
Yes, as rents rise and the loan is paid down.
Related terms
Sources
General information only. It does not consider your objectives, financial situation or needs, and is not financial, credit, tax or legal advice. Rules change, so check current law and get advice from a licensed professional before acting.