Negative Gearing vs Positive Gearing: Which Strategy Is Right for You?

When Australian investors talk about property strategy, gearing almost always comes up. But "negative" and "positive" gearing aren't just two names for the same thing done differently — they represent fundamentally different bets on how property wealth gets built.

What is negative gearing?

A property is negatively geared when your total costs — loan interest, council rates, insurance, management fees, maintenance, and depreciation — exceed the rental income it produces. The shortfall is a tax-deductible loss, which reduces your taxable income for the year.

For example: if your investment property generates $26,000 in rent but costs $38,000 to hold, you have a $12,000 loss. At a 37% marginal tax rate, this saves you $4,440 in tax — reducing your actual out-of-pocket cost to around $7,560 for the year, or roughly $145 per week.

Use our negative gearing calculator to model the exact tax savings for your situation.

What is positive gearing?

A positively geared property generates more rental income than it costs to hold. The surplus is taxable income — but it also means the property is putting money in your pocket each week rather than requiring a top-up from your salary.

Positive gearing is typically found in regional markets, lower-priced properties with strong yields (5–8%), and older dwellings where purchase prices are modest relative to rent. Cities like Hobart, Adelaide, and regional Queensland have historically produced more positively geared opportunities than Sydney or Melbourne.

The tax comparison

Negative gearing's tax benefit is a function of your marginal rate. Higher earners get more back — a 47% taxpayer saves 47 cents per dollar of property loss, while someone on 19% saves only 19 cents. This is why negative gearing is most powerful for high-income earners, but far less useful for investors earning under $45,000.

Positive gearing creates the opposite: taxable income at your marginal rate. A $5,000 annual surplus is only worth $3,150 after tax if you're in the 37% bracket. Structuring ownership carefully — placing the property in the name of the lower-income partner — can minimise this tax drag.

Capital growth vs income

The real difference between the two strategies is the trade-off between capital growth and current income. Negatively geared properties are typically found in high-demand inner-city and coastal markets where growth potential is strong but yields are thin. Positively geared properties tend to be in locations where yields are high but growth is slower or less predictable.

This isn't absolute — there are negatively geared properties in low-growth areas and positively geared ones in booming regional markets. But as a general framework, negative gearing is a growth play and positive gearing is an income play.

Which strategy suits you?

• High income, strong cashflow: Negative gearing works well. The tax benefit is maximised and you can comfortably fund the shortfall from salary.
• Moderate income, tight budget: Positive gearing is safer. A property that pays for itself removes cashflow pressure.
• Long time horizon (10+ years): Negative gearing in a high-growth corridor can deliver superior total returns despite the annual drag.
• Approaching retirement: Positive gearing supplements income without adding tax complexity.
• Multiple properties: Many investors hold a mix — negatively geared growth assets alongside a positively geared regional property that self-funds.

There's no universally correct answer. The best strategy is the one that fits your marginal tax rate, cashflow capacity, time horizon, and lifestyle goals. Run the numbers for both before committing to either.