Common Mistakes with Positive Geared Investment Loans

A positive geared investment property generates more rental income than it costs to hold each month. For property investors across Gippsland looking to build passive income without relying on salary to cover shortfalls, structuring the right loan is as important as choosing the right property.

What Makes an Investment Loan Positive Geared

An investment loan becomes positive geared when weekly rental income exceeds all holding costs, including loan repayments, rates, insurance, body corporate fees if applicable, and maintenance. The difference is assessable income you report and pay tax on.

Consider a buyer who purchases a two-bedroom unit in a Gippsland town with strong rental demand. Rental income sits at $420 per week. The loan is structured with a higher deposit to reduce the loan amount and borrowing at a competitive investor interest rate on principal and interest repayments. Weekly loan repayments come to $310. After rates, insurance and an allowance for maintenance of around $80 per week, the property generates $30 positive cash flow. That surplus builds week after week and provides income rather than requiring the investor to top up repayments from wages.

Why Deposit Size Drives the Outcome

The higher your deposit, the lower your loan amount and the lower your weekly repayments. Most lenders set the investor deposit requirement at 20 per cent to avoid Lenders Mortgage Insurance, but a larger deposit directly improves cash flow.

In our experience, investors targeting positive gearing in regional areas often use equity from an existing property rather than cash savings. If you own a home in Traralgon or Morwell with accessible equity, you can leverage equity to fund a deposit of 25 or 30 per cent on the investment property. That reduces the investment loan amount and repayments enough to flip a marginally negative property into positive territory.

Principal and Interest or Interest Only for Positive Cash Flow

Interest only repayments are lower than principal and interest, which makes positive gearing appear simpler to achieve. But interest only means you are not reducing the loan balance, and most lenders now limit interest only terms to five years on investment loans before reverting to principal and interest.

If you structure for positive cash flow using interest only repayments and rates rise or the loan reverts to principal and interest, the property may no longer generate surplus income. A loan structured on principal and interest from the outset locks in genuine positive gearing that survives rate movements and term changes. It also builds equity as the loan balance reduces, which supports future portfolio growth or refinancing.

Fixed Rate or Variable Rate for Investor Loans

A fixed interest rate provides certainty over repayments for the fixed period, which can protect positive cash flow if variable rates rise. But fixed rates typically carry higher break costs if you need to refinance or sell, and you lose access to offset accounts on most fixed rate products.

A variable interest rate offers flexibility and access to an offset account, which allows you to park surplus rental income and reduce interest charges without locking funds away. If the property generates $150 surplus each week, that income accumulates in the offset and reduces interest on the outstanding loan amount in real time. Over a year, that compounds.

For positive geared properties where cash flow and flexibility matter more than locking in a rate, variable usually delivers better long-term value. You can also split the loan between fixed and variable if you want partial rate protection without giving up all flexibility.

How Vacancy Rate and Location Affect the Numbers

A property is only positive geared when tenanted. If vacancy rate in the area runs high or the property sits empty for extended periods, positive cash flow turns into a holding cost you must cover from other income.

Gippsland towns with stable employment, hospitals, schools and infrastructure tend to show lower vacancy rates and stronger rental demand. Properties close to Latrobe Regional Hospital or Federation University in Churchill, or near established retail and services in Traralgon, Moe or Sale, typically lease faster and hold tenants longer than properties in more isolated areas. When assessing whether a property can sustain positive gearing, rental demand and tenant retention matter as much as the purchase price.

Why Claimable Expenses Still Matter Even Without Negative Gearing Benefits

From 1 July 2027, new rules quarantine rental losses on most residential investment properties purchased after 12 May 2026. Losses can no longer offset salary or wages. But positive geared properties are not negatively geared, so the new rules have no impact on your ability to offset costs.

You still claim interest, property management fees, insurance, rates, repairs and depreciation as deductions against rental income. Because the property generates surplus income, those deductions reduce the tax you pay on that surplus. If your property produces $1,500 positive cash flow over the year and you have $800 in claimable expenses, you pay tax on $700 of assessable income rather than the full $1,500.

Choosing Investment Loan Features That Support Cash Flow

Not all investment loan products are identical. Lenders offer different investor interest rates, fees, offset options and flexibility depending on the loan structure and your borrowing profile.

An offset account is particularly valuable for positive geared investors. Surplus rental income can sit in the offset and reduce interest charges without being locked into the loan. You retain access to the funds for maintenance, property upgrades or further investment. Some lenders also offer rate discounts for larger loan amounts or for bundling multiple products, which can reduce the investment loan interest rate and improve cash flow further.

When comparing investment loan options, assess the annual cost of the loan including fees and the interest rate, not just the advertised rate. A loan with a slightly higher rate but no ongoing fees and a full offset can deliver lower net cost than a loan with a discounted rate and high annual fees.

How DTI Caps Affect Investment Loan Approval

From 1 February 2026, lenders must limit the proportion of new investor loans at a debt-to-income ratio of 6 times or greater to 20 per cent of their investor lending portfolio. If your total debt including the new investment loan is more than six times your gross annual income, you may face additional scrutiny or be declined even if serviceability calculations suggest you can afford the loan.

Positive geared properties generate rental income that lenders include in serviceability calculations, which can improve your borrowing capacity and reduce your effective DTI. If you earn $90,000 and want to borrow $580,000, your DTI sits above 6. But if the investment property delivers $22,000 in annual rental income, lenders include a portion of that income when assessing serviceability, which can bring the effective ratio under the threshold or improve your application strength.

Using an Investment Loan Refinance to Improve Cash Flow

If you already own an investment property that is neutrally or negatively geared, refinancing to a lower rate or releasing equity to reduce the loan amount on a different property can shift the balance toward positive cash flow.

As an example, an investor holds a unit in Warragul with $340,000 owing at a variable interest rate that has risen over the past two years. Repayments now exceed rental income by $40 per week. The investor also owns a home in Traralgon with $150,000 in available equity. By refinancing both properties and using equity from the home to reduce the investment loan amount to $260,000, weekly repayments on the investment property drop below rental income. The property becomes positive geared and the investor no longer needs to top up repayments from salary.

Refinancing also provides an opportunity to switch lenders for a lower investor interest rate or to access features such as offset accounts that were not available on the original loan. When rental markets tighten or interest rates move, an investment loan refinance can be the difference between holding a property long term and selling under pressure.

Call one of our team or book an appointment at a time that works for you. We work with property investors across Gippsland to structure investment loans that deliver income from day one and support long-term portfolio growth without relying on salary to cover shortfalls.

Frequently Asked Questions