Negative vs Positive Gearing: What Every Property Investor Should Know
Christian Stevens, Mortgage Broker
Published January 31, 2025, 2:10 p.m ET
Gearing is one of the most talked-about concepts in Australian property investment — and for good reason. Whether you’re negatively or positively geared can impact your cash flow, tax deductions, and long-term strategy.
Here’s what these terms mean, how they work in practice, and what to consider when planning your next investment move.
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🔑 Key Facts
- Negative gearing means your investment expenses exceed your rental income — creating a taxable loss.
- Positive gearing means your rental income exceeds your expenses — generating net income.
- Both strategies have pros and cons depending on your tax position, goals, and risk appetite.
- Flint helps investors choose lending structures that support either approach — or balance both.
What Is Gearing in Property Investment?
Gearing refers to borrowing money to invest in a property. Once you own the property and receive rental income, you’re either:
- Negatively geared: when rental income is less than your expenses (including loan interest), resulting in a loss.
- Positively geared: when rental income is more than your expenses, creating a net profit.
Negative Gearing: How It Works
With negative gearing, your property runs at a loss, but you can claim that loss as a deduction on your taxable income. This strategy is commonly used when:
- You're aiming for long-term capital growth over short-term income.
- The property is in a high-growth area but has modest rental returns.
- You want to reduce your tax liability while holding an appreciating asset.
Pros
- Reduces your taxable income
- Allows investment in high-value growth areas
- Long-term equity build-up
Cons:
- Ongoing out-of-pocket costs
- Risk if property values stagnate or fall
- Tax benefits depend on your income level
Positive Gearing: How It Works
With positive gearing, your rental income exceeds your expenses, so your property generates income from day one. This strategy suits investors who:
- Prioritise cash flow and stable returns
- Want to build a passive income portfolio
- Are approaching retirement or have lower taxable income
Pros
- Generates immediate income
- Supports loan servicing or lifestyle costs
- Less reliant on capital growth to be profitable
Cons:
- Income is taxable
- Properties may be in lower-growth areas
- May need a larger deposit to find cash-flow positive opportunities
Choosing the Right Gearing Strategy
Your ideal approach depends on your financial goals, income, and risk tolerance:
- Higher-income earners may benefit more from negative gearing due to larger tax offsets.
- Cash flow-focused investors often prefer positive gearing to reduce risk and improve serviceability.
Long-term investors may blend both strategies across their portfolio.
Key Considerations Before You Decide
- Tax isn’t everything: A tax deduction is still a loss — make sure the numbers work.
- Property selection matters: Gearing outcomes depend on rent vs cost, not just intent.
- Loan structure plays a role: Interest-only loans can maximise negative gearing, while P&I loans build equity.
- Your plan may change over time: Reassess your strategy annually as income, tax and market conditions shift.
📞 Want Help Structuring Your Investment Loan for the Right Outcome?
At Flint, we help property investors:
- Understand how gearing impacts tax, cash flow and growth
- Structure loans for tax effectiveness and long-term strategy
- Match properties to the right finance — whether you’re building income or wealth
Talk to Flint today and gear your portfolio with expert advice that supports your goals.
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