Avoid These 5 Positive Gearing Loan Mistakes

A positively geared property earns more rent than it costs to hold. For builders, the loan structure decides whether that holds up once real-world costs and lender rules come into play.

You can't count on rent alone, and you can't count on a lender to treat your income the way you do. Five mistakes that can cost investors money are below.

Mistake 1: Assuming the Lender Counts All Your Rent

Lenders do not count all of a property's rent when they assess your loan. APRA's view is that prudent lenders count no more than 80 per cent of expected rent, to allow for periods when the property sits empty.

This 20 per cent haircut is about vacancy. It is not about agent fees, repairs or insurance, so those costs still come out of your pocket. Lenders also tend to place less weight on a rental appraisal for a property you haven't bought yet than on actual rent received. Plan your numbers on the lower figure, not the one the agent quotes.

Your own income also matters. If you run your own building business, how a lender reads your tax returns affects your borrowing capacity. Our self employed loans page explains how that works.

Mistake 2: Thinking Interest Only Lifts Your Borrowing Power

An interest only loan does not increase how much you can borrow. APRA expects lenders to assess interest only loans on principal and interest repayments over the remaining term after the interest only period ends.

As an example, a 30 year loan with a 5 year interest only period is assessed on repayments over the remaining 25 years. That gives a lower maximum loan than the same loan on principal and interest from day one.

Interest only does lower your repayments during the interest only period, which can help cash flow. The trade-off is that you don't reduce the balance, and when the period ends your repayments rise because you pay off the full balance over a shorter time. Read more on interest only loans before you commit.

Mistake 3: Picking a Loan Without Running the Numbers

A property is positively geared only if the rent beats all your costs, including loan interest. Run the numbers on the loan before you sign a contract.

Consider a builder who buys a property with a $600,000 loan on interest only at the illustrative rate of 6.75% p.a. Interest is $40,500 a year, or about $779 a week. Add rates, insurance and management fees, and the rent has to clear that total before the property is positive. If the rent falls short, the property is negatively geared and the builder funds the gap from wages.

The builder tests the same loan on principal and interest at 6.75% p.a. over 30 years. Repayments rise to about $3,891 a month, compared with $3,375 a month on interest only. The higher principal and interest repayment would reduce monthly cash flow by about $517. Whether there is a shortfall depends on the rent and other costs. The outcome is that the builder keeps the interest only period for cash flow and sets aside the monthly difference to prepare for the higher repayments later.

This example is illustrative only. Use a repayment calculator with your own figures, and remember rates vary by lender and deposit size.

Mistake 4: Ignoring the Tax Rules for Properties Bought Now

The rules for negative gearing now depend on when you buy. Positive gearing means you pay tax on the profit, so the main tax risk is a property that slips back into a loss.

Properties held at 7:30pm AEST on 12 May 2026 keep full deductibility of losses against other income. From the 2027-28 income year, net rental losses on established residential properties bought after that time can only be deducted against other residential property income. Eligible new builds are treated differently and can still deduct losses against all income.

This matters if your property turns out to be less positive than planned. A loss on a newer established purchase may be carried forward rather than reducing the tax on your wages. Only the interest part of a repayment is deductible, not the principal. Speak to your accountant about how this applies to you.

Eligibility for the new build rules depends on the legislation. Knock-down rebuilds that don't add dwellings and substantial renovations are not eligible. Check the details with your accountant before relying on the new build rules.

Mistake 5: Using Equity Without Thinking About the Interest

Borrowing against equity does not make the interest deductible. Deductibility depends on what you do with the borrowed money.

Under ATO ruling TR 2000/2, each drawdown or redraw is treated as its own borrowing. Money used for a private purpose, such as a holiday or a vehicle used privately, does not produce deductible interest. Money used to buy another investment property can. A vehicle used for business may be treated differently, so ask your accountant. If you mix purposes in the one loan, only part of the interest is deductible, and your records get messy fast.

Keep investment and private borrowings in separate loan splits. If you want to use equity for the next purchase, look at equity release loans and how they fit with your investment loans for tradies. The trade-off is more borrowing against your home and higher total repayments. Lenders also assess the new debt, so it still needs to pass serviceability.

Once your first property is performing, our page on expanding your property portfolio covers the next stage. If you also need finance for your own place, see home loans for tradies or our wider finance for tradies options.

Call one of our team or book an appointment at a time that works for you. We will go through your numbers, check how lenders will treat your income and rent, and compare investment loan options from lenders across Australia.

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