Positive and negative gearing are two key strategies Australian property investors use to grow wealth. Positive gearing means your rental income exceeds expenses, while negative gearing involves running at a loss to gain tax benefits. Both approaches have pros and cons depending on your income, goals, and risk appetite. Here’s a breakdown of how each works and what to consider before choosing.
What Is Gearing in Property Investment?
In property investing, gearing refers to borrowing money to buy an investment property. The balance between your rental income, loan repayments, and property expenses determines whether you’re positively or negatively geared.
Both strategies can be effective, but they serve different purposes. Understanding them helps you align your investment approach with your financial goals.
Positive Gearing Explained
A property is positively geared when your rental income is greater than the costs of owning it (loan repayments, rates, maintenance, insurance, and property management fees).
Example:
If your property brings in $2,200 per month in rent, and your total expenses are $1,900, you’re left with $300 positive cash flow.
Benefits of Positive Gearing:
- Provides additional income to boost cash flow.
- Makes it easier to service your loan and grow your portfolio.
- Less reliance on future capital growth to see a return.
Risks/Drawbacks:
- Positively geared properties are often in regional or high-yield areas, which may not have the same long-term growth potential as capital city properties.
- Extra income is taxable, reducing the net benefit.
Negative Gearing Explained
A property is negatively geared when rental income is less than expenses, meaning you make a loss. This loss can be offset against your other taxable income, reducing your overall tax bill.
Example:
If rent is $1,800 per month but your expenses total $2,200, you’re running at a $400 monthly loss. This loss may reduce your taxable income and, therefore, your tax payable.
Benefits of Negative Gearing:
- Immediate tax benefits that reduce your taxable income.
- Often associated with capital city or growth-focused properties, which may appreciate in value over time.
- Widely used strategy among high-income earners.
Risks/Drawbacks:
- You’re running at a cash loss, which can strain finances if rates rise or rents fall.
- Reliant on future capital growth to outweigh short-term losses.
- Tax benefits may be reduced if government policy changes.
Pros and Cons of Each Strategy
Strategy | Pros | Cons |
Positive Gearing | Extra income, more substantial cash flow, easier to expand portfolio | Taxable income, often in lower capital growth areas |
Negative Gearing | Tax offsets, access to growth markets, are popular with high-income earners. | Cash losses, reliant on capital growth, risk of policy/tax changes |
Which Strategy Works Best for You?
The right approach depends on your:
- Income level – High-income earners may benefit from negative gearing tax offsets, while those seeking cash flow may prefer positive gearing.
- Risk appetite – Negative gearing involves tolerating short-term losses in exchange for long-term growth potential.
- Investment goals – If you’re aiming for steady cash flow and lifestyle flexibility, positive gearing may suit. If you’re focused on long-term wealth building, negative gearing could be the better fit.
Working with an experienced mortgage broker and financial planner can help you structure your loans correctly and choose the right properties to match your goals.
Property is a cornerstone of wealth creation in Australia, but gearing strategies can make or break your success. Choosing the wrong structure could mean years of cash flow stress or missed opportunities.
As a broker, I help clients:
- Model the cash flow impact of positive vs negative gearing.
- Structure loans to separate deductible (investment) from non-deductible (home) debt.
- Use tools like PIA (Property Investment Analyst) to test different scenarios.
This ensures you invest with clarity and confidence.
Final Thoughts and Next Steps
Both positive and negative gearing can be powerful when used in the right context. The key is aligning the strategy with your income, goals, and property selection.
If you’re considering your next investment, let’s run the numbers together and see which approach works best for you.
(No cost, no obligation — just friendly advice.)