What Is a Positively Geared Property?
A positively geared property is an investment property where the rental income exceeds all the costs of holding it, ie. loan interest, management, rates, insurance and maintenance.
The property pays for itself and hands you the difference. You are not topping it up out of your salary each month; it is topping up your salary.
That is the entire concept. The hard part is not understanding it. The hard part is finding a property that actually does it at current interest rates, because the standard Australian residential rental almost never does.
This guide explains positive gearing properly, shows the arithmetic that decides whether a property clears the bar, and works through a full side-by-side comparison of a conventional rental and a co-living property bought at the same price in the same market including the costs most articles on this topic quietly leave out.
Positive Gearing vs Negative Gearing
"Gearing" just means borrowing to invest. The prefix tells you which way the cash flows.
Positively geared: rental income is greater than the total holding costs. The property generates a profit, and you pay income tax on that profit at your marginal rate.
Neutrally geared: income and costs roughly cancel out. The property costs nothing to hold, and you are relying entirely on capital growth.
Negatively geared: holding costs exceed rental income. The property runs at a loss, you fund that loss from other income, and you can deduct the loss against your taxable income. The strategy only works if capital growth eventually exceeds the accumulated losses.
Negative gearing is not a strategy in itself — it is a tax consequence of an unprofitable asset. It can be a perfectly rational choice if you are confident about growth and you have surplus income to service the shortfall. But it is worth being blunt about what it is: you are paying, every week, for the right to hold something you hope will be worth more later. A positively geared property removes that dependency. Growth becomes upside rather than the entire investment case.
Positive Gearing vs Positive Cash Flow (Not the Same Thing)
These two terms get used interchangeably and they are not identical. The difference is depreciation, and it matters a lot at tax time.
Positive cash flow is what actually lands in your bank account: rent received, minus every dollar you actually spend.
Positive gearing is usually measured on the same basis, but your taxable position also includes depreciation — a non-cash deduction for the declining value of the building and its fittings.
The sweet spot, and the reason new-build stock behaves so differently from established stock, is a property that is cash-flow positive but shows a paper loss after depreciation. You collect surplus rent in cash, and the depreciation deduction shelters it, or more, from tax. We will show exactly how that works in the worked example below.
How Many Australian Investors Are Actually Negatively Geared?
The scale here explains why "positive cash flow property" is one of the most-searched phrases in Australian property investment.
Australian Taxation Office data shows roughly 2.26 million Australians hold an interest in at least one rental property, and around 1.12 million of them (49.4%) were negatively geared. As interest rates rose, the position deteriorated further: landlords recorded a collective net rental loss of $2.7 billion in 2023–24, with about 54% of investment properties running at a cash-flow loss. Negative gearing reduced personal income tax revenue by $10.9 billion in that year alone.
Put plainly: more than half of Australia's rental properties cost their owners money to hold. That is not a failure of the investors. It is a structural feature of buying assets that yield 3–4% using debt that costs closer to 7%.
The Arithmetic That Decides Everything
Whether a property is positively geared comes down to one comparison: net rental yield versus your interest rate.
If a property grosses 4% and roughly 20% of that rent disappears into rates, insurance, management, and maintenance, the net yield is about 3.2%. Borrow 80% of the purchase price at 6.7% — around the average Australian investment variable rate in 2026 — and the interest bill alone is 5.4% of the purchase price. Net income of 3.2% against interest of 5.4% is a guaranteed shortfall. No amount of careful budgeting closes a gap that size.
To be positively geared at an 80% loan-to-value ratio and a 6.7% rate, the property needs a net yield above roughly 5.4%, which typically means a gross yield above 7%. Australian capital city houses generally sit between 2.5% and 4%. Regional units do better. Very little conventional residential stock clears 7%.
This is why genuinely positively geared property tends to come from a different structure rather than a cleverer purchase: commercial property, NDIS and SDA housing, dual-income dwellings, or renting one building by the room instead of by the house.
What the Tax Actually Looks Like
Positive gearing means a taxable profit but only after depreciation, and on a new build that deduction is substantial.
Two categories apply. Division 43 capital works allows 2.5% of the construction cost per year for 40 years; on a build cost around $500,000 that is roughly $12,500 a year. Division 40 plant and equipment covers appliances, carpets, blinds, hot water systems, air conditioning and, on a turnkey property, the entire furniture package. Rules introduced in 2017 removed plant and equipment deductions for second-hand residential assets, but new property is unaffected, which is a genuine and often overlooked advantage of buying new. In the early years this commonly adds another $8,000–$15,000 a year under the diminishing value method.
Take a conservative combined figure of $22,000 in year one:
Cash flow: +$16,560
Less depreciation: –$22,000
Taxable rental result: –$5,440, a paper loss
So the investor banks $16,560 in cash, pays no tax on it, and carries a $5,440 deduction against other income — worth about $2,122 at a 39% marginal rate. Total year-one benefit of roughly $18,700, or $359 a week.
That is the structure worth understanding: positive cash flow in the bank, negative gearing on paper. You need a quantity surveyor's depreciation schedule to claim it properly, and the deduction declines over time — but in the years when the loan balance is highest, it does real work.
The Break-Even Interest Rate
The most useful stress test for any positively geared property is: how far do rates have to rise before this stops working?
Divide net operating income by the loan balance. For the co-living property, $64,800 against a $720,000 loan gives a break-even interest rate of 9.0%. Rates would need to rise more than two full percentage points above current investor pricing before the property stopped paying for itself. At 8% it still clears roughly $7,200 a year.
Run the same test on the conventional rental and the break-even rate is 4.73% — a level Australian investor lending has not seen in years. That property is not marginally negative; it is structurally negative, and only a substantial rate cut changes it.
This is the real argument for high-yield structures. It is not that they produce more income in a good year. It is that they keep producing income in a bad one.
Things to consider
Occupancy Is the Swing Factor
The worked example assumes the rooms are full. Run it again with one of the five rooms permanently vacant and gross rent falls to $72,800. Management fees fall with the rent, so operating costs drop to about $24,400, but the interest bill does not move. Cash flow lands at roughly break-even. One empty room out of five wipes out the entire surplus.
That cuts both ways. Multi-room properties are never 100% vacant the way a single-tenant house can be, so the downside is far shallower than a conventional rental sitting empty. But the upside depends entirely on keeping rooms filled, which is a specialist management job, not something a generic residential agent does well. Occupancy is where this asset class is won or lost.
Yield Often Trades Against Capital Growth
High-yield property tends to sit in markets with lower long-run capital growth than blue-chip metropolitan suburbs. That is a real trade-off and you should price it in rather than assume you get both. The counterargument is that positive cash flow compounds your borrowing capacity — a property that services itself does not restrict the next purchase the way a negatively geared one does — so investors frequently reach a larger portfolio faster even with lower per-property growth.
Compliance Is a Real Cost, Not a Formality
A co-living property in Victoria operates as a registered rooming house, which brings council registration, operator licensing, and mandatory minimum standards. Those obligations are in the $1,000 compliance line in the example above, but the bigger risk is getting the structure wrong at the start. We covered the full framework in our guide to what a rooming house is, including the penalties for operating unregistered.
Rates and Rents Both Move
The example uses a 6.7% investor rate and current market room rents. Both change. The break-even analysis above is there precisely so you can see how much room the structure gives you before the position flips.
The Victorian Land Tax Exemption Most Investors Miss
One line item that can materially improve the numbers above: the Victorian State Revenue Office offers a land tax exemption for properties used as registered rooming houses.
The criteria are strict — registration under Part 6 of the Public Health and Wellbeing Act 2008, at least 80% occupancy in the prior tax year by residents staying three months or more, no residents related to the owners or operators, and weekly tariffs below prescribed caps ($412.55 for single lodging-only accommodation in 2026, indexed annually to the aged pension). Most purpose-built co-living rooms in regional Victoria sit under that cap, so the exemption is genuinely reachable.
In a state where land tax thresholds have tightened considerably, removing that annual bill entirely is worth several thousand dollars a year on a property of this value. It is not automatic and you should confirm eligibility with your accountant before relying on it.
Is a Positively Geared Property Right for You?
Positive gearing suits you if you want the investment to stand on its own rather than depend on a growth forecast, if your borrowing capacity is the constraint on building a portfolio, if you are approaching or in retirement and need income rather than a tax shelter, or if you simply do not want a weekly shortfall coming out of your salary.
Negative gearing may still suit you better if you are on a high marginal rate with strong surplus income, you are confident about capital growth in a specific market, and you are investing on a long enough horizon for that growth to outrun the accumulated losses.
Most investors are not choosing between two philosophies. They are choosing whether the property they are about to buy can pay for itself and at current rates, that question has a numerical answer you can work out before you sign anything.
See the Numbers on a Real Property
Co-Living NextGen builds purpose-built co-living homes in regional Victorian growth corridors, designed and registered as compliant rooming houses and managed in-house by a team that only manages co-living. The NextGen 4, 5, and 6 configurations give every bedroom its own ensuite and dedicated living area, and the packages are structured around the yield arithmetic set out above.
If you want the cash-flow numbers modelled on a specific available property rather than a worked example, get in touch with our team.
Positive Gearing FAQs
Do you pay tax on a positively geared property?
Yes. Net rental profit is added to your assessable income and taxed at your marginal rate. Depreciation deductions frequently reduce that taxable profit to zero or below on a new build, even while the property is producing surplus cash.
What gross yield do I need to be positively geared?
As a rule of thumb at an 80% loan-to-value ratio and a 6.7% interest rate, you need a gross yield above roughly 7%. Lower your loan-to-value ratio and the required yield falls; raise your interest rate and it rises.
Is positive gearing better than negative gearing?
Neither is universally better. Positive gearing prioritises income and preserves borrowing capacity; negative gearing prioritises growth and provides a tax deduction. Positive gearing is more robust to rate rises, which is why it has drawn far more attention since 2022.
Can a property be positively geared and still show a tax loss?
Yes, and it is the ideal outcome. Depreciation is a deduction you claim without spending cash, so a property can deliver surplus cash flow while recording a taxable loss.
Are co-living properties always positively geared?
No. The yield makes it achievable, not automatic. Occupancy, purchase price, loan structure, interest rate, and management quality all decide the outcome.
Sources
Australian Taxation Office — Taxation statistics (rental property and negative gearing data)
Victorian State Revenue Office — Rooming houses land tax exemption
This is general information, not financial, tax, or legal advice. The figures provided are illustrative worked examples, not a forecast or a guarantee of return. Get advice from a qualified accountant and finance broker before you buy.
