Guide · Investing
Negative vs Positive Gearing: What They Mean for Property Investors
Gearing just means borrowing to invest. Whether it's negative or positive comes down to one thing: does the rent cover the costs, or not? Here's what each means for your cash flow and your tax, plus the changes announced in 2026 that every investor should be across.
When you borrow to buy an investment property, you're geared. Each year that property brings in rent and racks up costs: loan interest, council rates, insurance, management fees, maintenance. Compare the two and you land in one of two camps. If the costs outweigh the rent, the property is negatively geared. If the rent outweighs the costs, it's positively geared. Neither is automatically better. They're just different trade-offs between cash flow now and tax position, and the right one depends on your income and goals.
| Negatively geared | Positively geared | |
|---|---|---|
| Rent vs costs | Costs exceed rent | Rent exceeds costs |
| Cash flow | Runs at a loss each year | Puts cash in your pocket |
| Tax | Loss may reduce your taxable income | Extra income is taxable |
| Relies on | Capital growth to get ahead | Income, with growth a bonus |
| Suits | Higher earners chasing growth | Those wanting cash flow now |
How negative gearing has worked
The appeal of negative gearing has always been the tax side. When a property runs at a loss, that loss has generally been able to offset your other income, like your salary, reducing your overall tax bill. The bet is that the property grows in value by more than the yearly losses cost you, so you come out ahead when you eventually sell. It's a growth play that leans on tax and future capital gains, not on the property paying its own way today.
Big changes announced in 2026
In the May 2026 Federal Budget, the government announced that negative gearing on established residential properties will be limited from 1 July 2027, for properties bought after the announcement on 12 May 2026. For those, rental losses would no longer offset salary or other income, only future rental income or capital gains. Existing owners at the announcement date are grandfathered, and eligible new builds are set to stay exempt. These are announced changes and legislation can shift, so confirm the current rules with your accountant before you rely on them.
The case for positive gearing
A positively geared property puts money in your pocket every year after all the costs are paid. That extra income is taxable, so you don't get a tax break, but you're not funding the property out of your own pay each month either. This suits investors who want cash flow, who are on a lower income, or who simply don't want the strain of topping up a loss. With the changes coming to negative gearing, cash flow positive properties are getting a fresh look from a lot of investors, and that's worth thinking through carefully rather than following the crowd.
This is a tax question as much as a loan question
Whether gearing helps you depends on your income, your marginal tax rate and your goals, and now on timing too. I can structure the loan to match your strategy, but the tax treatment is your accountant's call. This is general information, not tax advice. Get both of us in the room before you commit.
The honest takeaway is that gearing is a tool, not a goal. A property that leaks cash every year only makes sense if you're confident in the growth and you can comfortably fund the shortfall. With the 2026 changes on the horizon, the loan structure and the property choice matter more than ever. I help investors set the loan up to suit either approach, and you can see how on the investment property page. If you're planning to draw on your home to fund it, start with using equity to invest.
Working out which approach fits you?
Bring your accountant's view and I'll structure the loan to match, whether you're chasing growth or cash flow.
Frequently asked questions
Is negative or positive gearing better?
Neither is better on its own. Negative gearing has suited higher earners chasing capital growth who can fund a yearly shortfall and use the loss against their income. Positive gearing suits investors who want cash flow and don't want to top up a loss. With the 2026 changes to negative gearing, more investors are weighing up cash flow, so it's worth a proper conversation with your accountant.
Is negative gearing being abolished in Australia?
Not entirely, but it's being scaled back. The 2026 Budget announced that from 1 July 2027, negative gearing on established residential properties bought after 12 May 2026 would no longer offset salary or other income. Existing owners are grandfathered and eligible new builds stay exempt. These are announced changes that can still shift in legislation, so check the current position with your accountant.
Does gearing affect how much I can borrow?
Yes. Lenders assess the rental income and the property's costs when working out your borrowing power, and different lenders treat them differently. A positively geared property can support your borrowing, while a negatively geared one relies more on your own income to service the loan. Picking the right lender for an investor profile can change what you can borrow.
Important information
This information is general in nature and does not take your personal objectives, financial situation, or needs into account. It is not credit assistance or a recommendation to enter into any particular credit contract. Consider whether it is right for you and seek advice before acting. Lending is subject to a lender's eligibility and approval criteria. Terms, conditions, fees, and charges apply.
Greenwood Finance · ABN 23 671 049 693 · Credit Representative No. 551942.
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