What is Positive Gearing? Loan Assessment Guide

Positive gearing means a property’s income exceeds its included costs over a stated period. For a loan file, the useful question is how the client calculated that surplus and which records support it. A positive property cash flow doesn’t automatically establish how much the lender will let the client borrow.

Define Positive Gearing

A positively geared property earns more rental income than its interest and other included property expenses for the period being measured. Treasury’s explanation of gearing uses income exceeding expenses as the definition. Negative gearing describes the reverse: expenses, including interest, exceed income.

Keep the gearing calculation separate from cash left after loan repayments. A principal-and-interest repayment includes an amount that reduces the loan balance. Including that principal payment in a cash budget can produce a smaller surplus than an interest-and-expenses comparison.

Before using a client’s positive-gearing claim, record the period and the costs included. State whether the figures include principal repayments, vacancy allowances and irregular expenses. Identify any excluded land tax, special strata levies or other known costs.

A month with rent received and few bills paid can look positive while the full year shows a shortfall. Rent advertised for an empty property is also different from rent already received. Keep those assumptions visible in the calculation.

Work Through a Property Cash Flow

Calculate property cash flow by subtracting the period’s property payments from rent received or reasonably budgeted for that same period. The following example is hypothetical. Every amount is in Australian dollars and covers one 52-week year, before the owner’s income tax.

Assume one owner, a residential unit rented at $700 a week and two weeks without rent. The hypothetical loan requires $24,000 in annual principal-and-interest repayments, comprising $19,000 interest and $5,000 principal. These are example inputs, not a loan quote or a predicted return.

Annual line item	Calculation or assumption	Amount
Rent with full occupancy	$700 multiplied by 52 weeks	$36,400
Vacancy allowance	Two weeks multiplied by $700	-$1,400
Rent after vacancy	$36,400 less $1,400	$35,000
Council and water rates	Hypothetical annual bills	-$2,400
Strata levies	Hypothetical annual levies	-$2,000
Insurance	Hypothetical annual premiums	-$1,200
Property management	7% of $35,000 collected rent	-$2,450
Maintenance allowance	Hypothetical annual budget	-$1,500
Cash before loan repayments	$35,000 less $9,550 property costs	$25,450
Loan repayments	Interest of $19,000 plus principal of $5,000	-$24,000
Annual cash surplus	$25,450 less $24,000	$1,450

On the interest-and-property-cost basis, income exceeds the included costs by $6,450. After the $5,000 principal payment, the cash surplus is $1,450. Neither figure determines the client’s tax result.

This example excludes purchase and selling costs, depreciation and the owner’s income tax. It assumes no land tax or special strata levy is payable. Add any applicable cash cost before describing a real client’s surplus.

The small surplus changes when the inputs change. Four vacant weeks instead of two reduce rent by another $1,400. With management still charged at 7% of rent collected, the surplus falls to $148.

An extra $2,000 repair takes the original $1,450 surplus to a $550 shortfall. If annual loan repayments rise by $2,400, that original surplus becomes a $950 shortfall. Higher rates, strata levies or insurance premiums also reduce it dollar for dollar when other inputs stay fixed.

Moneysmart’s property-cost guide identifies these ongoing costs and explains the risk of vacancies and higher repayments. Use actual bills where available and label estimates separately. An annual surplus also leaves timing gaps when a large bill falls due before the next rent payment.

Translate the Claim Into Loan Evidence

Support a positive-gearing claim with the underlying rent and expense records, then enter the lender’s required inputs separately. Serviceability is the lender’s assessment of the borrower’s ability to meet loan commitments. It can produce a different result from the property’s cash budget.

Match each input to the property and the same reporting period:

Scenario input	Records to gather	What to reconcile
Rent received	Property manager statements and relevant bank credits	Gross rent, deductions, missed payments and rent actually received
Contracted or estimated rent	Current lease or rental appraisal	Weekly amount, lease dates and whether the property is tenanted
Ownership	Title or purchase records	The client’s share of the property and income
Ongoing property costs	Rates notices, strata statements, insurance documents and management agreement	Annual amounts, due dates and expenses already deducted from rent
Maintenance	Paid invoices and separately labelled allowances	Actual spending versus budget estimates
Loan payments	Loan statements and repayment details	Balance, repayment type, interest and principal amounts

If the property manager’s statement shows rent after fees, reconcile it to gross rent before deducting management again. For a purchase, keep the rental appraisal separate from evidence of an existing tenant’s payments. These records explain the scenario without implying every lender accepts each document for verification.

Macquarie’s serviceability input guidance, as at October 2026, apportions rent by ownership and uses only part of verified rent for servicing. It also gives separate property-expense input requirements. This illustrates why entering the client’s net cash surplus as rental income gives the wrong starting point.

Use the selected lender’s current rent, expense and debt inputs for the actual assessment. Keep the original cash-flow calculation alongside it so differences remain explainable. The rental income evidence guide covers detailed lender treatment, while the investment property loan guide covers the wider borrower and security assessment.

Set the Advice Boundary

The broker verifies the finance inputs and prepares the loan assessment. A property surplus alone doesn’t answer whether the investment suits the client or what tax treatment applies.

Record the client’s stated purpose, the source of each amount and the cash-flow assumptions. Explain any differences between that budget and the lender’s serviceability result. The lender decides acceptable evidence, borrowing capacity and approval under its assessment.

Give the client the rent records, expense breakdown and loan interest details to take to their accountant or registered tax agent. Tax treatment requires that separate assessment. Questions about investment suitability and return forecasts belong with an appropriately qualified adviser.

Finish the finance file with a supported cash-flow calculation and a separate lender assessment. Describe exactly which costs the surplus includes, so the client and assessor can understand the same figures.