Positive vs. Negative Gearing: Which Strategy Suits Your Goals?

Positive and negative gearing are two of the most common strategies used by property investors in Australia. Each approach has its own benefits, risks, and suitability depending on your financial situation and investment goals.

Rather than asking which one is better, the more important question is: which one is right for you?

In this article, we’ll break down how both strategies work, what they offer, and how to determine which approach fits your investment journey.

What is Negative Gearing?

Negative gearing occurs when the rental income from your property is less than the total expenses—such as mortgage interest, rates, insurance, and maintenance. The shortfall is considered a net loss, which can be used to reduce your taxable income.

This approach is often used by investors who are targeting long-term capital growth rather than short-term profit.

Here’s how negative gearing works in practice:

• Tax deductions: You can offset your property losses against other income to reduce your overall tax bill.

• Growth-focused strategy: The aim is for the property to grow in value over time, outweighing the early-stage losses.

• Access to high-performing locations: Negative gearing may allow you to enter stronger markets that have higher capital growth potential.

However, it also has some important considerations:

• Requires strong cash flow: You’ll need to cover the shortfall from your own income while holding the property.

• Market risk: If growth doesn’t materialise, the investment can become a long-term burden.

• Not ideal for low-income investors: The short-term cost may be too much for those without a financial buffer.

Best suited to: Investors with high taxable income, stable cash flow, and a long-term capital growth strategy.

What is Positive Gearing?

Positive gearing happens when your rental income exceeds your expenses. The property generates profit from day one, delivering surplus cash flow and potentially lower financial stress.

This strategy focuses more on income than tax deductions and is commonly used by investors who value financial security and regular returns.

Here’s why positive gearing appeals to many investors:

• Immediate income: The rental surplus can help cover personal expenses or fund additional investments.

• Easier to manage financially: You don’t need to dip into your own savings to cover loan shortfalls.

• Lower holding risk: The cash flow from the property can make it easier to maintain over the long term.

There are also some trade-offs:

• Tax on income: Since you’re earning profit, the income is taxable.

• Variable growth potential: Not all high-yield areas deliver strong capital growth.

• Limited property types: Positively geared properties are often units, regional properties, or those in more affordable areas.

Best suited to: Investors prioritising cash flow, income stability, or early-stage portfolio growth.

Positive vs. Negative Gearing: Key Differences

Which gearing strategy suits you best?

The right strategy depends entirely on your individual circumstances. There’s no one-size-fits-all answer—just what aligns best with your financial goals, income position, and risk appetite.

Here’s what to consider before choosing:

• Income level: Higher-income earners may benefit more from the tax offsets of negative gearing.

• Cash flow buffer: If you don’t have much surplus income, a positively geared property may be safer.

• Long-term goals: Are you looking for early passive income or future capital gains?

• Risk tolerance: Can you afford to ride out short-term losses for long-term gains?

Tip: Many investors combine both strategies—starting with negatively geared properties for capital growth, then adding positively geared ones to balance cash flow as their portfolio expands.

Bringing it all together

Both positive and negative gearing can play a valuable role in a successful property investment strategy. The key is not to chase one approach over the other, but to understand which one supports your financial position and long-term objectives.

Need help choosing the right gearing strategy for your portfolio? Book your investment session with PropVest and let’s structure a plan tailored to your goals.