Positive Gearing vs Negative Gearing: Which Strategy Wins?

30 October 2025

12 minutes

Positive vs Negative Gearing: The Complete Guide

Key Takeaways

Negative gearing means your property costs more to hold than it generates in rent, but losses reduce your taxable income.
Positive gearing means your property generates more income than expenses, providing actual cash flow but creating a higher tax bill.
Negative gearing works best for high-income earners (37-45% tax bracket) targeting capital growth in major cities.
Positive gearing suits lower-income earners, first-time investors, and those building larger portfolios with better serviceability.
The smartest strategy is often a balanced portfolio mixing both approaches based on your income, goals, and risk tolerance.

Five years ago, I sat in my accountant's office, completely lost. He kept throwing around terms like "negative gearing" and "positive cash flow" while I pretended to understand.

I just nodded along, not wanting to look stupid.

It turns out half of Australia's property investors don't really understand the difference either. They just follow what everyone else does.

That ignorance cost me $22,000 in unnecessary interest payments over three years.

Once I finally understood positive versus negative gearing, everything changed. My investment strategy improved. My cash flow stabilized. My stress levels dropped.

Let me break down what I wish someone had explained to me from day one.

What Actually Is Negative Gearing?

Negative gearing is simple. Your property costs more to hold than it generates in rent.

Mortgage interest, rates, insurance, and other expenses exceed your rental income. You lose money each month.

But here's the catch. That loss reduces your taxable income. You pay less tax.

My first investment property lost $650 monthly. Annual loss of $7,800. At my 37% tax bracket, that saved me $2,886 in tax.

So my actual out-of-pocket cost was $4,914 annually instead of $7,800.

Still a loss, just a smaller one.

Item	Amount
Rental Income	$X
Expense	$7,800
Monthly Loss	$650
Annual Loss	$7,800
Tax Saved (37%)	$2,886
Actual Out-of-Pocket	$4,914

What Is Positive Gearing?

Positive gearing means your property makes money. Rental income exceeds all expenses.

You receive actual cash flow every month. Money in your bank account, not just on paper.

My regional property generates $420 monthly positive cash flow. That's $5,040 annually hitting my account.

But I pay tax on that profit. At 37%, that's $1,865 in tax, leaving me with $3,175 net income.

Item	Amount
Monthly Cash Flow	$420
Annual Cash Flow	$5,040
Tax Saved (37%)	$1,865
Net Income	$3,175

The Negative Gearing Trap Everyone Falls Into

Most Australian investors chase negative gearing. They think it's the secret to property wealth.

I did too. My first three properties were all negatively geared.

The problem? I was constantly feeding money into properties. Every month, money flowed out.

When my tenant left unexpectedly, I still had to cover $650 monthly. Then $1,300 when my second property's tenant also left.

My savings disappeared fast. The stress was crushing.

Negative gearing only works if you can afford the cash flow drain. Many investors can't.

When Negative Gearing Makes Sense

I'm not saying negative gearing is bad. It works brilliantly in specific situations.

High Income Earners

If you're in the 37% or 45% tax bracket, negative gearing saves substantial tax. The higher your income, the more valuable the tax deductions.

My $7,800 annual loss saves me $2,886 in tax. Someone in the 45% bracket saves $3,510.

Strong Capital Growth Areas

Negative gearing works when you're betting on capital growth. You accept short-term losses for long-term gains.

My Melbourne apartment loses $8,200 annually but has grown $120,000 in value over four years. The capital growth far exceeds my losses.

Stable Employment

Negative gearing requires consistent income to cover losses. Job security is essential.

I only pursue negative gearing strategies now when my employment is rock solid.

Sufficient Cash Reserves

You need emergency funds covering at least six months of losses. Without this buffer, negative gearing is dangerous.

Property Tax Financials Made Easy: Complete Them in 10 Minutes!

Tracking expenses, costs and cash flow across multiple properties gets complicated quickly. I use The Property Accountant to monitor exactly how much each property costs me monthly. It shows me my real position across my entire portfolio in real-time.

The Positive Gearing Advantage

Positive gearing changed my investment game completely.

Immediate Cash Flow

Money comes in every month. This funds more investments faster.

My positively geared property generates $5,040 annually. After tax, that's $3,175 I can save or reinvest.

Less Stress

No worrying about covering mortgage payments during vacancies. The property pays for itself.

Bank Friendly

Banks love positive cash flow. Getting finance for your next property becomes easier.

Sustainable Growth

You can hold more properties when they're self-funding. Negative gearing limits how many properties you can afford.

Detailed Analysis & Strategy Guide

When Positive Gearing Works Best

Positive gearing suits different investor profiles.

Lower Income Earners

If you're in the 32.5% or lower tax bracket, negative gearing benefits are minimal. Positive cash flow makes more sense.

First-Time Investors

Starting with positive cash flow builds confidence and experience without financial stress.

My first property should have been positively geared. Would have saved me so much anxiety.

Multiple Property Strategy

Positive properties fund the holding costs of negative ones. This creates a balanced portfolio.

Regional Investors

Regional areas often offer better rental yields, making positive gearing easier to achieve.

The Hidden Costs Everyone Ignores

Both strategies have costs people forget about.

Negative Gearing Hidden Costs

Your cash flow suffers. Every property drains your account monthly.

Emergency repairs hit harder. A $5,000 hot water system replacement hurts more when you're already losing $650 monthly.

Vacancies devastate budgets. No rent but full expenses can break unprepared investors.

Positive Gearing Hidden Costs

Higher tax bills reduce returns. That cash flow gets taxed at your marginal rate.

Lower capital growth areas often coincide with positive gearing opportunities. You might sacrifice growth for cash flow.

Which Strategy Should You Choose?

The answer depends entirely on your situation.

Positive Gearing	Negative Gearing
You're in lower tax brackets where tax benefits are minimal.	You're in the 37% or 45% tax bracket where tax benefits are substantial.
You need immediate cash flow to fund lifestyle or more investments.	You have a stable high income to cover losses comfortably.
You're starting out and want less financial stress.	You're targeting long-term capital growth over immediate cash flow.
You're building a large portfolio where serviceability matters.	You have substantial cash reserves for emergencies.
You prefer sleep over tax deductions.	You can handle financial stress without losing sleep.

My Current Strategy

I now buy positively geared properties exclusively. Here's why.

The cash flow funds my lifestyle without touching salary. This creates genuine financial freedom.

Positive properties let me expand my portfolio faster. Better serviceability means more borrowing capacity.

The stress reduction is priceless. No panic when tenants leave. No scrambling to cover losses.

Yes, I pay more tax. But I sleep better at night.

The Bottom Line

Common Myths Debunked

Myth 1: Negative Gearing Is Always Better

False. It depends on your income, goals and risk tolerance.

Myth 2: You Can't Build Wealth with Positive Gearing

Wrong. Many wealthy investors built portfolios on positive cash flow.

Myth 3: Regional Properties Don't Grow

Incorrect. Many regional areas outperform capital cities during certain periods.

Myth 4: You Must Choose One Strategy

False. The best portfolios mix both strategies strategically.

Final Thoughts

Gearing isn't a religion. It's a tool. Positive or negative, neither is inherently better.

Negative gearing works brilliantly for high-income earners seeking capital growth who can afford the cash flow drain.

Positive gearing works better for most investors who want sustainable portfolio growth without constant financial stress.

The smartest strategy? Blend both based on your circumstances.

Don't blindly follow what everyone else does. Understand your income, risk tolerance, and goals.

Then build a portfolio that works for your life.

That's the real key to property investment success.