Why Positive Gearing Should Matter to Eltham Investors

Positive gearing means your rental income exceeds your holding costs, producing cashflow you can bank or reinvest each month.

Most investors in Eltham focus on capital growth, but a positively geared property changes the conversation entirely. Instead of relying on future price rises to justify negative cashflow, you hold an asset that pays you to own it. The challenge is finding a property where the rental return clears not just the mortgage repayment, but also council rates, insurance, property management fees, and body corporate fees if applicable.

How Positive Gearing Works in Practice

A positively geared property generates more rental income than the total of your deductible and non-deductible holding costs. Consider an investor who purchases a two-bedroom unit in the surrounding region where the median rent sits around $550 to $580 per week. At $580 per week, annual rental income is $30,160. If the investor borrows 80 per cent of the purchase price at current variable rates, the principal and interest repayment might be $26,000 per year. Add council rates of $1,800, insurance of $1,200, property management fees of $2,100, and body corporate of $3,000, and total annual holding costs reach $34,100. In this scenario, the property is negatively geared by $3,940 per year.

Now consider a similar unit purchased at a lower price point or with a larger deposit, reducing the borrowing to 60 per cent. The annual principal and interest repayment drops to $19,500. Holding costs excluding the mortgage remain $8,100, bringing total annual costs to $27,600. At $30,160 in rent, the property is positively geared by $2,560 per year, or roughly $213 per month. That surplus can be directed toward accelerating repayments, building an offset balance, or funding the next investment property.

Interest Only Versus Principal and Interest

Switching to an interest only loan reduces your monthly repayment, which can turn a marginal property into a positively geared one. Using the earlier example, if the investor borrows 80 per cent on an interest only basis, the annual interest cost might be $21,000 instead of $26,000. Total holding costs drop to $29,100, leaving the property positively geared by $1,060 per year.

The trade-off is that you are not reducing the principal balance, so your equity position only improves if the property appreciates. Interest only loans also typically carry a higher interest rate than principal and interest loans, narrowing the cashflow advantage. If your goal is to expand your property portfolio quickly, interest only can preserve serviceability by keeping repayments low. If your goal is to reduce debt over time, principal and interest is the more direct path.

What Yields Look Like in Eltham and Nearby Suburbs

Eltham's three-bedroom houses traded at a median of $1,030,000 to $1,350,000 through the year to September 2026, according to Domain. Two-bedroom units traded at a median of $682,500, and three-bedroom units at $859,000. Rental data for Eltham was not available in the current reporting period, but nearby Bundoora recorded a house yield of 3.38 per cent and a unit yield of 5.10 per cent to June 2026, per CoreLogic. Greensborough, also in the City of Banyule, recorded a house yield of 3.35 per cent and a unit yield of 4.01 per cent over the same period.

For a property to be positively geared, the gross rental yield must exceed the sum of your mortgage interest rate, ongoing costs, and any vacancy or maintenance buffer. If you borrow at a variable rate of 6.5 per cent and your non-interest holding costs add another 1.5 per cent of the property value, you need a gross yield above 8 per cent to achieve positive gearing on a principal and interest loan with an 80 per cent loan to value ratio. On an interest only loan at the same LVR, the threshold drops to around 6.5 per cent plus the 1.5 per cent non-interest cost component, or 8 per cent total. Units in Bundoora at a 5.10 per cent yield would require a larger deposit or a lower purchase price to cross into positive territory.

Why Deposit Size and Purchase Price Determine Everything

The single largest factor in whether a property is positively geared is how much you borrow. A 20 per cent deposit on a $680,000 two-bedroom unit in a nearby suburb means a loan of $544,000. At current variable rates, the annual principal and interest repayment is roughly $42,000. At $580 per week in rent, annual income is $30,160, leaving the property negatively geared even before adding ongoing costs.

Increase the deposit to 40 per cent, and the loan drops to $408,000. The annual repayment falls to $31,500, and the property moves close to neutral gearing before adding other costs. At a 50 per cent deposit, the loan is $340,000, the repayment is $26,200, and the property is positively geared by $3,960 before deducting rates, insurance, and management fees. Once those are included, the property may return to marginal negative gearing, but the cashflow gap is narrow enough that a modest rent increase or a small rate cut tips it positive.

This is why refinancing to release equity from an existing property rarely leads to positive gearing on the next purchase. Borrowing 80 per cent or more against the new asset pushes the repayment above the rental income unless the yield is exceptionally high.

The Tax Position You Need to Understand

Positive gearing means you pay tax on the surplus income. If your property generates $2,500 in net rental profit for the year, that amount is added to your assessable income and taxed at your marginal rate. For a taxpayer on the 37 per cent marginal rate, the after-tax cashflow is $1,575. You still receive income, but the tax obligation reduces the benefit.

Under the grandfathering provisions of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, properties held at 7:30pm AEST on 12 May 2026 or acquired under contract at that time can continue to deduct rental losses against other income, including salary and wages, until the property is sold. Properties acquired after that date can only deduct losses against other residential property income, unless the property is an eligible new build. A positively geared property is unaffected by the change because there is no loss to quarantine. If you are acquiring an established property after 12 May 2026 and cannot achieve positive gearing, the rental loss can only offset future rental profits or capital gains from residential property, which reduces the immediate cashflow benefit of holding the asset.

When Positive Gearing Makes Sense and When It Doesn't

Positive gearing suits investors who need income now, who want to reduce reliance on other employment income to service debt, or who are approaching retirement and cannot afford to subsidise a property from wages. It also suits investors who have maximised their borrowing capacity and need each new property to carry itself in order to qualify for the next loan.

Positive gearing does not suit investors who prioritise capital growth above all else. High-yield properties are often located in areas with lower price growth, or they are smaller, older, or in need of renovation. A positively geared unit in a regional centre may deliver $200 per month in surplus cashflow but appreciate by 2 per cent per year, while a negatively geared house in an inner suburb may cost $400 per month to hold but appreciate by 6 per cent per year. Over a ten-year hold, the capital growth difference can exceed the cumulative cashflow advantage by a significant margin.

For Eltham buyers, the leafy character and proximity to schools, parks, and the Eltham Village precinct have historically supported steady capital growth rather than high rental yields. If your goal is to build wealth through property without drawing on other income, you may need to look at higher-yield suburbs further from the CBD or accept a longer timeline before cashflow turns positive.

What Lenders and Brokers Consider When Assessing Rental Income

Lenders typically assess rental income at 80 per cent of the market rent to account for vacancy, arrears, and maintenance. If a property rents for $600 per week, the lender will use $480 per week in the serviceability calculation. This shading can push a marginally positively geared property into negative territory for serviceability purposes, even if the actual cashflow is positive.

Some lenders will accept a rental assessment at 100 per cent of market rent if the property is already tenanted and the lease has more than six months remaining, or if the applicant has a strong rental history across an existing portfolio. If you are refinancing an investment loan to improve your rate or release equity, having a current lease in place can improve your serviceability position and unlock access to additional borrowing.

Call one of our team or book an appointment at a time that works for you. We work with lenders across Australia who assess rental income differently, and we can structure your application to reflect the actual cashflow position of the property rather than a conservative shaded figure.

Frequently Asked Questions