How do you buy a positively geared property?
To buy a positively geared property, look for one where the rent should cover every deductible cost, including interest, with room to spare. Work out net yield, not just gross yield. Then test the numbers at a higher interest rate and with some empty weeks. Remember the profit is taxed and does not cover paying down the loan.
By Ankit PaliwalUpdated
Six steps to test a property before you buy
- Set your deposit and loan
Get pre-approval and know your interest rate and repayment type.
- Screen on gross yield
Use it to build a shortlist, not to decide.
- Check the rent
Get a written rent estimate and compare recent leases nearby.
- Cost every line
Rates, water, insurance, strata, management, repairs and land tax if it applies.
- Stress-test
Rerun the sums at a higher rate and with some weeks empty.
- Check the property
Do full due diligence, including building and pest and the contract.
What makes a property positively geared?
A property is positively geared when the rent is more than the costs you can claim. Claimable costs cover interest, rates, insurance, management, repairs and depreciation. Loan principal is not a deductible cost. So a property can be positively geared on paper while you still put cash in to pay down the loan.
The same house can be positive for one buyer and negative for another. A buyer with a 40% deposit pays far less interest than one with a 10% deposit. The interest rate, the loan type and any depreciation all change the result too. That is why you work out the numbers for your own loan, not a listing's claim.
How do you check the numbers before you buy?
Start with gross yield: yearly rent divided by the price. It is quick, but it ignores costs. Then work out net yield by taking every yearly cost off the rent first. Use real quotes for insurance, the council's rates notice and the strata levies, not guesses.
Check the rent too. Ask a local property manager for a written rent estimate and compare recent leases on similar homes. Look at the vacancy rate and how long rentals sit empty. Then run the sums again at a rate one or two points higher. If the margin vanishes, the property is not as safe as it looks.
What are the trade-offs?
Areas with high rents compared with prices can have weaker growth, smaller tenant pools or an economy tied to one industry. That does not rule them out, but it means more checks. Look at jobs, new supply, days on market and who rents there.
Positive gearing still means a taxable rental profit under the 2027 rules. If an established residential property bought after 7:30pm AEST on 12 May 2026 makes a loss, that loss can only offset residential property income and gains from 1 July 2027. Existing holdings keep their current treatment and new builds are exempt. Check your tax position and leave room for changing costs.
| Measure | How it is worked out | What it tells you |
|---|---|---|
| Gross yield | Yearly rent divided by price | A quick filter to compare listings |
| Gearing result | Rent minus deductible costs, including interest | Whether you make a tax profit or loss |
| Cash flow | Rent minus all cash out, including principal and tax | What actually lands in or leaves your account |
Testing a property at two interest rates
- Price $450,000. Rent $560 a week: 560 x 52 = $29,120 a year. Gross yield: 29,120 / 450,000 = 6.5%.
- Loan of 80%: $360,000, interest only. At 6%, interest is 0.06 x 360,000 = $21,600.
- Other yearly costs of $5,800 bring the total to 21,600 + 5,800 = $27,400. Result: 29,120 - 27,400 = a $1,720 profit.
- At 7%, interest is $25,200 and total costs are $31,000. Result: 29,120 - 31,000 = a $1,880 loss.
The same property with four empty weeks
- Four empty weeks cost 4 x 560 = $2,240 in rent.
- Rent for the year falls to 29,120 - 2,240 = $26,880.
- At the 6% rate, the result is 26,880 - 27,400 = a $520 loss.
- The $1,720 margin did not cover a one-point rate rise or four empty weeks. A wider buffer, or a bigger deposit, gives you more room.
For investors
Cash flow buys time, not a free result.
A property that pays its way lets you hold through a rate rise or a slow patch. It can also help you borrow for the next one, since lenders count the rent. But income is only half of the return. Weigh the yield against the growth you give up, and compare total return over the years you plan to hold.
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