What is positive gearing and how does it work?

A positively geared property is one where your incomings i.e. rental income is higher than your outgoings i.e. mortgage repayments, repairs, strata fees, council rates, resulting in positive cash flow before tax. 

Advantages of Positive Gearing

1.Cash in Hand

Having a property fully covered by rental income means that you immediately begin generating positive cash flow. You can also search the web to get more information about negative vs positive gearing property.

Image Source: Google

2.Profit without relying on capital growth

Positive cash flow means immediate income from your investment, as opposed to relying on property prices to increase to make a profit. 

3.Increased purchasing power

As a result of having a better cash flow, you can potentially use this to further build your investment portfolio or pay down an existing mortgage on your principal place of residence.

4.Relatively rare

To achieve positive gearing, creative strategies are sometimes required to make the property more desirable in the market.

These strategies sometimes involve actively renovating or adding value to the existing property, or better yet, investing in properties with strong rental yields (i.e. 5.5%) whilst interest rates are low in the current environment. 

Often, positively geared property with strong rental yields are found in regional locations, however, these types of investments experience lower capital growth – but in certain pockets of capital cities there are opportunities for stronger rental yielding investments, it is just a question of knowing where to look!

Positive Gearing over Time

Quality of property in prime locations can experience rental growth over time. This increase in rent over time has the potential to convert negatively geared properties into positively geared properties.