Top 10 Ways Positive Gearing Works for South Morang Investors

An investment loan structured for positive gearing delivers rental income that exceeds all property holding costs, including interest, rates, insurance and maintenance. Unlike negative gearing, you do not rely on tax deductions to offset losses against your salary.

South Morang investors looking at this strategy often consider properties in regional centres, dual-income dwellings, or newer apartments with low body corporate fees. The challenge is not whether positive gearing works in principle, but whether the deposit required and rental yield align with your portfolio objectives.

What Makes an Investment Property Positively Geared

Positive gearing occurs when the rental income exceeds your total annual property expenses. You calculate this by comparing the weekly rent multiplied by 52 against loan interest, council rates, insurance, strata fees if applicable, maintenance allowances, and property management.

Consider an investor purchasing a two-bedroom unit in a regional Victorian town. The property rents for $380 per week, generating $19,760 annually. With a loan amount of $280,000 at current variable investor interest rates, annual interest on an interest-only loan sits around $16,520. After adding $1,800 for rates, $900 for insurance, $1,200 for body corporate, and $1,500 for maintenance, total expenses reach $20,920. The property is negatively geared by $1,160. To achieve positive gearing, the investor refinances to a principal and interest loan, reducing the interest component over time, or purchases with a larger deposit so the loan amount falls to $240,000. At that loan size, interest drops to approximately $14,160, and the property generates a surplus of roughly $1,680 per year before tax.

Why South Morang Investors Consider This Approach

South Morang has seen consistent population growth driven by families relocating from inner Melbourne and first home buyers entering the market. The suburb's proximity to employment hubs in the northern corridor and access to Mernda rail services make it a solid owner-occupier market, but rental yields on local properties often sit below the threshold needed for positive gearing without a substantial deposit.

Investors based in South Morang who want passive income typically look beyond their own suburb. They target areas where rental demand is high relative to property values, such as towns with university campuses, mining support services, or tourism infrastructure. The investor retains a mortgage broker in South Morang to structure the loan and borrowing capacity, then purchases elsewhere to achieve the yield.

How Loan Structure Affects Your Cash Flow

The choice between interest-only and principal and interest repayment directly changes whether a property is positively or negatively geared. An interest-only investment loan minimises monthly repayments, which can help a property reach positive cash flow. However, you do not reduce the loan balance, and when the interest-only period expires, repayments increase.

A principal and interest loan costs more each month, but the interest component falls as the principal is paid down. Over five to seven years, this reduction in interest can shift a marginally negative property into positive territory. Investors who plan to hold long-term often accept a small negative position initially, knowing the cash flow will improve as the loan matures and rents increase.

If you are deciding between structures, calculate the breakeven point. Work out the rental income required to cover principal and interest repayments plus all other costs. If current rent is within 10 per cent of that figure, the property may become positively geared within a few years without requiring rent increases above inflation.

The Role of Deposit Size in Achieving Positive Cash Flow

A larger deposit reduces the loan amount and the interest charged, which directly improves cash flow. Many positively geared properties require a deposit above 30 per cent to generate surplus income from day one.

An investor with $120,000 in savings considers a $350,000 property in a regional area. With a 20 per cent deposit, the loan amount is $280,000, and Lenders Mortgage Insurance applies because the loan to value ratio exceeds 80 per cent. After LMI, establishment fees and settlement costs, the investor has borrowed $290,000. Annual interest is approximately $17,110, and rental income is $18,200. Other holding costs total $3,500, resulting in a net loss of $2,410 per year.

If the same investor increases the deposit to 35 per cent, the loan amount drops to $227,500. LMI is avoided. Interest falls to around $13,425 annually. With the same rental income and holding costs, the property generates a surplus of $1,275 per year. The investor has turned a negatively geared asset into a positively geared one by adjusting the deposit, not the property.

How the Treasury Laws Amendment Affects Negative Gearing

From 1 July 2027, net rental losses on residential properties acquired on or after 7:30pm AEST on 12 May 2026 cannot be offset against salary or other non-residential income. Losses are quarantined and can only be used against future rental income or capital gains on residential property.

This change does not apply to eligible new residential dwellings, defined as properties constructed on previously vacant land or developments that increase the total number of dwellings. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. If a new build is occupied for more than 12 months before being sold to a subsequent investor, that investor loses access to the negative gearing exemption.

For South Morang investors purchasing established property after the legislation takes effect, positive gearing becomes a more relevant strategy. You cannot rely on rental losses to reduce your taxable income, so structuring the investment loan to produce surplus cash flow from the outset reduces the financial impact of holding the asset.

Rental Yield Across Different Property Types

Rental yield is annual rent divided by the property purchase price, expressed as a percentage. A property purchased for $400,000 that rents for $400 per week has a gross yield of 5.2 per cent. After deducting non-interest expenses, the net yield may be closer to 4.5 per cent.

Unit and apartment properties in regional centres often deliver higher gross yields than houses in metropolitan growth suburbs. However, vacancy rates, body corporate fees, and the cost of special levies can erode net returns. Older houses on larger blocks may offer lower gross yields but also lower holding costs and better long-term capital growth prospects.

If your objective is positive gearing, focus on net yield after all expenses, not gross yield. A property with a 6 per cent gross yield and $4,000 in annual body corporate fees may deliver a lower net return than a 5 per cent gross yield property with $1,200 in rates and no strata costs.

Fixed Rate vs Variable Rate for Investment Loans

A fixed interest rate locks your repayment for a set period, which makes cash flow forecasting easier. If you have structured a property to be positively geared by a small margin, a fixed rate protects that position from rate rises during the fixed term.

A variable interest rate typically offers more flexibility. You can make extra repayments without penalty, redraw funds if needed, and access offset accounts on some products. If you plan to pay down the loan faster or use equity for further purchases, a variable rate suits that strategy.

Some investors split the loan between fixed and variable portions. This approach balances stability and flexibility but adds complexity when refinancing or restructuring. For positively geared properties where the surplus is small, rate certainty often outweighs the need for flexibility, so a fixed rate may align with the investment objective.

Using Equity to Fund a Positively Geared Purchase

If you own a home in South Morang and have built equity, you can leverage that equity to fund the deposit and settlement costs for an investment property. This allows you to retain your cash savings for other purposes or to meet serviceability buffers imposed by the lender.

Lenders calculate borrowing capacity using a serviceability buffer of 3 percentage points above the loan rate. If the product rate is 6.0 per cent, the lender assesses your ability to service the loan at 9.0 per cent. When you release equity, the lender treats the new investment loan and any increase to your existing home loan as part of your total debt commitment.

You may be able to borrow the full deposit and costs using equity, but the higher loan amount reduces the chance of achieving positive gearing. Running the numbers before committing to a structure is necessary. A broker can model different deposit and loan scenarios to identify the combination that delivers surplus cash flow while meeting your borrowing capacity limits.

Tax Treatment of Positively Geared Investment Income

Rental income above expenses is assessable income and taxed at your marginal rate. Unlike negative gearing, you do not receive a tax deduction that offsets other income. Instead, you declare the surplus as income and pay tax accordingly.

All property-related expenses remain deductible, including loan interest, council rates, insurance, property management fees, repairs, and depreciation on the building and fixtures. You claim these deductions in your tax return, and the net rental profit is added to your taxable income.

If you are on a high marginal tax rate, the tax payable on a positively geared property can reduce the benefit of the surplus cash flow. However, you still retain the after-tax income, and the property is not costing you money each year while you wait for capital growth. For investors who want to build wealth without drawing on salary to cover losses, this trade-off is acceptable.

Why Some Investors Prefer Positive Gearing to Negative Gearing

Positive gearing delivers immediate cash flow, which can be reinvested, used to accelerate loan repayments, or held as a buffer against vacancy or maintenance costs. You are not dependent on future capital growth or tax refunds to make the investment viable.

Negative gearing relies on the assumption that capital growth will exceed the cumulative losses over the holding period. That assumption has been valid in many Australian markets over the past two decades, but it is not guaranteed. A positively geared property reduces exposure to that risk because the asset pays for itself regardless of capital performance.

With the introduction of loss quarantining for residential properties acquired after 12 May 2026, negative gearing no longer delivers the same immediate tax benefit for affected properties. Investors who would have used rental losses to reduce their tax bill now carry those losses forward, which delays the benefit and reduces the appeal of holding a negatively geared asset.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions