Why Should Bulimba Investors Weigh Positive Gearing?

A positively geared property is one where the rent covers the loan interest and the other costs of owning it. For a Bulimba resident, the loan structure you choose can decide whether that happens.

Bulimba is an inner-east Brisbane suburb on the Brisbane River, and many locals are thinking about a first or next investment. This article walks through how lenders view rent, how the loan structure changes your cash flow, and where the tax rules need care. We would like you to leave feeling clear and confident about your next conversation.

What Is a Positively Geared Investment Loan?

A positively geared investment loan is a loan on a rental property where the rent is higher than the interest and the other holding costs. The extra income is generally taxable, so it is worth planning for.

The loan itself is a normal investment loan. The positive result comes from the property, your rent, your costs and your loan structure working together. A lower loan amount, a larger deposit or a sharper rate can all move a property toward positive gearing. Each choice has a trade-off. A larger deposit ties up your savings, and a lower loan amount may limit which properties you can buy.

How Do Lenders Count Rental Income?

Lenders usually count only part of your expected rent. APRA's guidance says prudent lenders apply a minimum 20 per cent haircut, so no more than 80 per cent of expected rent is counted.

The haircut allows for periods when the property is empty. It is not a deduction for management fees or repairs. Lenders also tend to rely less on a rental appraisal than on actual rent received, and each lender has its own rules on what evidence it accepts. Banks and other authorised deposit-taking institutions must also test your ability to repay at a rate at least 3.0 percentage points above the loan rate. So a property can look positive on paper but still stretch your borrowing capacity once the lender runs its own numbers.

Interest Only or Principal and Interest: What Changes the Cash Flow?

Interest-only repayments are lower in the short term, but you do not reduce the loan. Principal and interest repayments cost more each month, and part of each payment pays down the debt.

Here is an illustrative example at 6.75% p.a. Consider a Bulimba investor with a $400,000 loan on a rental that earns $700 a week, which is $36,400 a year. They expect about $6,000 a year in other holding costs, such as insurance, rates and management fees.

On an interest-only loan, the interest is about $27,000 a year, or $2,250 a month. Rent of $36,400 less $27,000 interest less $6,000 costs leaves about $3,400 a year. The property is positively geared and also cash positive.

On a 30-year principal and interest loan at the same 6.75% rate, the repayment is about $2,594 a month, or around $31,100 a year. Interest in the first year is slightly under $27,000, so the property is still positively geared for tax purposes by roughly $3,500. But the cash flow is about $700 a year short, because the principal portion is not covered by rent.

The investor chooses principal and interest, because they want the debt falling. They keep a small cash buffer from their salary to cover the gap. The outcome is a property that earns a taxable surplus while the loan balance shrinks.

There is a catch with interest-only. If it runs for five years on a 30-year loan, repayments then switch to principal and interest over the remaining 25 years. In this example, that is about $2,763 a month at the same illustrative rate. Lenders also assess interest-only loans on that shorter remaining term, so interest-only does not increase how much you can borrow.

Which Costs Reduce Your Taxable Surplus?

Interest on the loan and the ongoing holding costs of a rental are generally deductible while the property is rented or genuinely available for rent. Only the interest part of a principal and interest repayment is deductible. The principal part repays debt and is not.

Costs such as council rates, insurance, management fees, repairs and depreciation can reduce the surplus. This is general information only. Please speak with your accountant about your own tax position, because the outcome depends on your circumstances.

How you use borrowed money also matters. Under ATO ruling TR 2000/2, deductibility depends on what each drawdown or redraw is used for. If you redraw from the investment loan for a holiday or a car, the interest on that portion is not deductible. An offset account lowers the interest charged, which also lowers the interest you can claim, but the loan balance and its purpose stay the same.

Does the Negative Gearing Change Matter to a Positively Geared Property?

The change matters mostly as a safeguard. From the 2027-28 income year, net rental losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can generally only offset other residential property income, including residential capital gains.

A property that is positive from day one does not produce a loss to worry about. But rents can fall, a tenant can leave or the rate can rise, and a loss could appear. Properties held at that time, and eligible new builds, keep the existing treatment. If you plan to buy an established property, talk to your accountant about how this affects your plan.

Capital gains tax is also changing from 1 July 2027. The 50 per cent discount is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains accruing from that date. Gains before that date are treated under the current rules. Your accountant can explain what this means if you plan to sell.

Using Equity and Refinancing to Move Toward Positive Gearing

Refinancing an existing loan can improve cash flow if a new lender offers a lower rate or a more suitable structure. Access to equity can also help you fund a deposit, but it adds debt.

If you already own a home in or near Bulimba, the equity in it may help fund an investor deposit. Lenders usually want your total debt at or below 80 per cent of the property value to avoid Lenders Mortgage Insurance (LMI), though each lender sets its own policy. Going above 80 per cent generally means paying LMI and getting approval from both the lender and the insurer. Borrowing against your home also puts that home at risk if the investment does not perform. A refinancing review can show whether a rate or structure change would do more for your cash flow than a new purchase. Our Loan Health Check is a good first step.

Why Work With a Local Broker?

A broker can compare loans from the lenders on their panel. Because lenders treat rent, interest-only terms and LMI differently, the same property can look quite different from one lender to the next.

There is a lot to talk through, and it helps to do it with someone who knows you. Our Bulimba mortgage broker team can run the repayments with you and explain the trade-offs in plain language. You are always welcome to bring your accountant's questions along too.

Call one of our team or book an appointment at a time that works for you. We will help you test your numbers and plan your next step.

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