Positive vs Negative Geared Properties: Cash Flow Reality
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“Negative gearing” gets thrown around as if it’s a free tax hack. It’s not. Here’s what actually happens to your money in each scenario.
Positive Gearing Explained
Annual rental income > annual property expenses (interest, council rates, insurance, repairs, management fees, depreciation).
Cash flow: Money in your pocket each year (after tax). Tax impact: You pay tax on the surplus at your marginal rate.
Negative Gearing Explained
Annual rental income < annual property expenses. The loss can be deducted against your other income (salary), reducing your overall tax bill.
Cash flow: Money out of pocket each year. Tax impact: You save some tax — but never as much as you’re losing in cash.
The Math People Don’t Run
Property cost: $700,000
- Loan at 6%: $42,000/year interest
- Other expenses (council, insurance, mgmt, repairs): $8,000/year
- Total expenses: $50,000
Rental income: $36,000/year (about $700/week)
Annual loss: $14,000
If you’re in the 37% tax bracket:
- Tax saved: $5,180
- Net out-of-pocket: $14,000 – $5,180 = $8,820/year
So you’re paying $8,820 annually for capital growth.
When Negative Gearing Works
- High capital growth markets where 5%+ annual appreciation outpaces your annual loss
- You’re in a high tax bracket (32.5%+ marginal rate)
- You can comfortably absorb the negative cash flow without lifestyle disruption
- Long hold period (10+ years) allowing growth to compound
When It Fails
- Flat or declining market — you bleed cash for years with no gain
- Job loss or income drop — suddenly you can’t service the loss
- Higher interest rates — the loss balloons
- Vacancies — even 4 weeks of no rent destroys the cash flow assumption
Positive Gearing Math
Property in regional area at $400k:
- Loan: $360k at 6% = $21,600/year interest
- Other expenses: $7,000
- Total: $28,600
- Rent: $32,500/year ($625/week)
Annual gain: $3,900 Tax owed: $1,440 (37% bracket) Net: $2,460/year positive
The 2026 Reality
Capital growth has been the historical bet for negative gearing. But:
- Slower growth in major capitals
- Higher interest rates making losses bigger
- More regulatory attention on negative gearing as policy
Many advisors now recommend hunting for neutral or slightly positive cash flow properties — boring but resilient.
Strategy by Income Bracket
- Under $90k income: Avoid negative gearing entirely. Positive cash flow only.
- $90k–$180k: Marginal benefit from negative gearing. Consider neutral cash flow.
- $180k+: Maximum tax benefit. Negative gearing optimization may make sense.
⚠️ Reality Check: “Tax savings” never beat “actual cash gains.” Negative gearing is a bet on capital growth, not a discount.