Simple hacks to find positive geared properties

What Does Positive Gearing Mean for Property Investors

Positive gearing occurs when rental income from an investment property exceeds all holding costs, including loan repayments, property management fees, council rates, insurance and body corporate fees where applicable. The surplus becomes taxable income. For investors based in Bundoora, this approach offers a different pathway to building wealth through property compared with the capital-growth focus that dominates much of Melbourne's established inner and middle-ring markets.

The shift toward positive gearing has gained momentum as serviceability buffers tighten borrowing capacity and as legislative changes to negative gearing deductions make income-producing assets more attractive. From the 2027-28 income year, losses on established residential properties acquired after 12 May 2026 can only be offset against other residential property income, not against salary or wages. Properties that generate surplus income avoid that quarantine entirely.

Where Positive Gearing Exists in Melbourne's Northern Corridor

Consider a buyer who acquires a unit in South Morang at the current median of $820,000 for houses or $564,880 for units. At a house yield of 3.70% or a unit yield of 4.80%, the unit delivers materially stronger cash flow. With a 20% deposit on the unit and a loan amount of approximately $452,000, monthly principal and interest repayments at current variable rates would sit around $2,900. Monthly rental income at $530 per week totals approximately $2,290. After allowing for property management fees, insurance, rates and a maintenance buffer, the unit would remain negatively geared on a principal and interest loan.

Switching the same unit to an interest-only loan changes the outcome. Monthly interest at current investor rates on $452,000 would be approximately $2,180. Rental income of $2,290 per month creates a small surplus before other holding costs, leaving the investor close to break-even or marginally positive depending on their specific cost structure. The same unit purchased with a 30% or 40% deposit reduces the loan amount further and moves the property decisively into positive territory.

South Morang, Mill Park and Epping share similar characteristics: newer housing stock, consistent tenant demand from families and access to the Mernda rail line. Buying your first investment property in these suburbs often requires accepting a lower capital growth profile in exchange for immediate income.

How Loan Structure Influences Cash Flow

Loan structure determines whether a property generates surplus income or requires ongoing contributions. An interest-only loan reduces monthly repayments to the interest component alone, typically improving cash flow by 30% to 40% compared with a principal and interest loan on the same amount. Most lenders allow interest-only terms of up to five years on investment loans, after which the loan reverts to principal and interest unless renewed.

The trade-off is straightforward: lower repayments increase cash flow now but leave the loan balance unchanged. Over a five-year interest-only period, the investor builds no equity through repayments, relying entirely on capital growth and the original deposit for equity accumulation. For investors targeting positive gearing, this is often acceptable. The surplus income can be directed toward other investments, held as a cash buffer, or used to accelerate repayments on other debt.

A variable rate loan offers flexibility to make additional repayments during the interest-only period without penalty, allowing an investor to reduce the loan balance when cash flow permits while preserving the option to revert to interest-only minimums if circumstances tighten. A fixed rate locks in repayment certainty but typically prohibits extra repayments beyond a small annual threshold.

Deposit Size and the Path to Surplus Income

The relationship between deposit size and cash flow is direct. A larger deposit reduces the loan amount, which reduces repayments, which increases the likelihood of surplus income. On a property generating 4.50% gross yield, a 30% deposit typically moves an interest-only loan into marginal positive territory after holding costs. A 40% deposit creates a more secure buffer.

Bundoora investors with access to equity from an existing property or savings accumulated over several years are better positioned to structure a positively geared purchase than first-time investors stretching to a 10% or 15% deposit. Lenders Mortgage Insurance is not deductible as an upfront expense and must be amortised over five years, eroding cash flow further for borrowers above 80% loan-to-value ratio.

Refinancing to release equity from an existing home allows an investor to increase their deposit on the next purchase without liquidating other assets. The released equity is not taxable, and the interest on the new investment loan remains deductible provided the funds are used to acquire or hold the income-producing property.

Units Versus Houses for Income-Focused Investors

Units consistently deliver higher rental yields than houses in the same suburb. In Bundoora, the house yield sits at 3.40% while unit yield data remains limited due to smaller transaction volumes. Across comparable northern suburbs, the unit premium is clear: Epping units yield 4.76% against 3.93% for houses, and Greenvale units yield 4.62% against 3.75% for houses.

The yield advantage reflects both lower purchase prices and strong tenant demand for well-located unit stock near transport, education and healthcare precincts. Bundoora's proximity to La Trobe University and the Austin Health precinct supports consistent rental demand from students, hospital staff and young professionals. Unit developments near the RMIT Bundoora campus and along Plenty Road attract tenants who prioritise location and convenience over space.

The offset is body corporate fees. A typical unit in a mid-density development incurs quarterly fees of $800 to $1,400, depending on the age of the building, shared facilities and sinking fund contributions. These fees are fully deductible but must be factored into cash flow calculations. Older unit blocks with lower fees may deliver better net yield than newer developments with gyms, pools and concierge services.

Tax Treatment of Positive Gearing

Surplus income from a positively geared property is added to assessable income and taxed at the investor's marginal rate. All holding costs remain deductible: loan interest, property management fees, insurance, rates, repairs, depreciation and body corporate fees. The deductions reduce the taxable surplus but do not eliminate it.

For an investor on a 32.5% marginal rate earning $2,000 in annual surplus income after all deductions, the additional tax liability would be $650. The after-tax surplus of $1,350 represents genuine passive income that can be reinvested or used to service other debt. This contrasts with negative gearing, where the investor receives a tax deduction on the loss but must fund that loss from other income sources first.

Depreciation on the building and fixtures can convert a cash-flow-positive property into a tax-deductible loss, preserving the cash surplus while still generating a paper loss to offset other income. This structure, sometimes called "positive gearing with negative taxable income," requires a quantity surveyor's depreciation schedule and applies most effectively to properties built or substantially renovated within the past 10 to 15 years. Investors should consult a tax adviser to confirm eligibility and optimise their structure.

Regional and Outer-Suburban Alternatives

Investors willing to look beyond Bundoora's immediate northern corridor often find stronger yields in Geelong, Ballarat, Bendigo and outer-growth suburbs along the Sunbury and Wollert corridors. Geelong's median house price of $920,500 delivers a 3.49% yield, with units yielding 4.49%. These figures sit within reach of positive gearing on an interest-only loan with a 30% deposit.

The risks shift from cash flow to capital growth and liquidity. Regional markets are more sensitive to local employment conditions and offer smaller buyer and tenant pools than metropolitan Melbourne. An investor who prioritises income over growth and intends to hold long-term can absorb those risks. An investor who may need to sell within three to five years faces greater execution risk in a regional market, particularly if economic conditions soften.

Expanding your property portfolio into regional markets requires careful lender selection. Some lenders cap exposure to specific postcodes or apply higher interest rates and lower maximum loan-to-value ratios to regional properties. A mortgage broker with access to regional-friendly lenders can identify which institutions will support the purchase and at what terms.

Interest Rates and the Margin Between Income and Cost

The margin between rental income and loan repayments narrows as interest rates rise and widens as rates fall. A property that generates $200 surplus per month at a 6.00% interest rate may fall into negative territory at 6.50% and deliver $500 surplus at 5.50%. Investors targeting positive gearing must assess whether the property remains viable across a range of rate scenarios.

A fixed rate provides certainty but removes flexibility. Most investors using interest-only structures prefer variable rates to retain the ability to make extra repayments when cash flow allows and to benefit immediately when rates fall. Some lenders offer a split structure, fixing a portion of the loan to lock in a portion of repayments while leaving the remainder variable. This approach balances certainty and flexibility but adds complexity to cash flow modelling.

Investors should model repayments at the actual loan rate, at current rates plus 1.00%, and at current rates plus 2.00%. If the property cannot sustain positive cash flow at the higher rate, the investor must either increase the deposit, accept negative gearing, or reconsider the purchase.

Vacancy Rates and Income Reliability

Melbourne's metro vacancy rate sat at 1.6% in June, indicating tight rental conditions and low vacancy risk for well-located properties. Bundoora's position within the northern healthcare and education corridor supports rental demand that is less sensitive to economic cycles than outer-growth suburbs reliant on employment in construction, logistics and retail.

A positively geared property with extended vacancy periods ceases to be positively geared. Investors should budget for one to two weeks vacancy per year as a baseline and hold a cash buffer equivalent to three months of loan repayments and holding costs. Properties in precincts with strong anchor tenants, such as university or hospital staff, experience lower turnover and shorter vacancy periods than properties in purely residential subdivisions.

Call one of our team or book an appointment at a time that works for you to discuss how loan structure, deposit size and property selection combine to deliver genuine surplus income from investment property.

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