Simple hacks to make positive gearing work in Croydon

Positive gearing means your rental income covers all holding costs including loan repayments, rates and insurance, leaving you with cash in hand each month.

Most people assume you need to buy cheap regional property or wait decades for rents to catch up. In Croydon, where the local rental vacancy rate remains tight and family homes near Croydon station and McAdam Square consistently attract working families and downsizers, positive gearing can be structured through loan choice rather than location alone. The loan you pick determines how much cash flows out each month, and that makes the difference between holding costs that drain your income and a property that pays for itself while you build equity.

Why Croydon suits a positively geared strategy

Croydon sits 27 kilometres east of Melbourne's CBD with direct train access and a range of schools, parks and shopping precincts that keep tenant demand solid. Three-bedroom homes and dual-occupancy townhouses near Croydon North Primary or Ruskin Park rent consistently, and tenants tend to stay longer when the suburb offers both transport links and local amenity. That combination reduces vacancy periods and supports stable rental income, which matters when your strategy depends on rent meeting or exceeding loan repayments.

Properties that appeal to families and long-term tenants reduce turnover costs. Fewer vacancy weeks and lower reletting fees mean your annual rental yield stays closer to the advertised figure, which in turn keeps your holding costs predictable. When you are buying with the intention of positive cash flow rather than speculating on capital growth, tenant stability becomes part of the financial structure.

How loan structure creates positive cash flow

A positively geared property is built through the combination of purchase price, deposit size, interest rate and repayment type. Principal and interest repayments are higher than interest-only repayments, so most investors chasing positive cash flow start with an interest-only period to reduce monthly outgoings. At current variable rates for investment loans, interest-only terms of up to five years are commonly available from lenders, and extending that period reduces the likelihood that repayments will outpace rent before you have built enough equity or rental growth to offset the principal portion.

Consider a buyer who purchases a renovated three-bedroom townhouse in Croydon, borrows at an LVR of 70 per cent, and secures an interest-only variable rate. Rental income for that property type in Croydon is around $550 to $600 per week. Weekly holding costs include interest, council rates, insurance, property management fees and an allowance for maintenance. If interest repayments sit at $480 per week and other holding costs total $80 per week, the property breaks even or generates a small weekly surplus. The buyer is not relying on negative gearing tax deductions to make the numbers work, and there is no need to top up repayments from salary each month.

That same buyer, had they chosen principal and interest repayments from the outset, would face weekly repayments closer to $650, pushing total holding costs above rental income and turning the investment negatively geared. The loan structure, not the property, determines the outcome.

Interest-only versus principal and interest for cash flow

Interest-only loans reduce your required monthly payment by deferring the principal component. During the interest-only period, your loan balance stays level and all repayments go toward interest, which is fully deductible when the property is rented or genuinely available for rent. At the end of the interest-only term, the loan typically reverts to principal and interest unless you negotiate an extension with your lender or refinance to another interest-only product.

Principal and interest repayments build equity faster but increase your cash outflow. For positively geared investors, that higher outflow can tip the property into negative territory unless rents are high enough to cover the additional principal component. If your goal is to hold the property long term and rely on rental income to service the debt, starting with interest-only gives you breathing room while rents increase or while you pay down other debt that may be limiting your borrowing capacity.

Some investors switch to principal and interest once rental income has grown or once they have cleared other liabilities that were restricting cash flow. The ability to extend or switch repayment types without penalty depends on your loan features, so it pays to structure the loan with that flexibility in mind from the start.

Variable versus fixed rates for positive gearing

Variable rates move with the Reserve Bank cash rate and lender funding costs. When rates are steady or falling, variable loans let you take advantage of lower repayments without waiting for a fixed term to expire. When rates rise, your repayments increase unless you have locked in a rate beforehand. For positively geared investors, the risk is that a rate increase pushes your holding costs above rental income, turning a cash-positive investment into a cash-negative one.

Fixed rates lock your interest cost for a set term, typically one to five years. Your repayments stay the same regardless of what happens to the cash rate, which makes budgeting straightforward and protects your cash flow if rates climb. The trade-off is that fixed loans usually carry higher break costs if you need to refinance or sell before the term ends, and many fixed products limit extra repayments or prevent offset account access during the fixed period.

For an investor in Croydon buying a property where the cash flow margin is tight, fixing a portion of the loan can protect the positive gearing outcome while leaving part of the loan variable for flexibility. That split structure means rate rises affect only the variable portion, and you can still access features like offset or redraw on the variable component while the fixed portion holds your repayments steady.

Using equity to fund the deposit without selling

If you already own property in Croydon or nearby suburbs, you may be able to access equity to fund part or all of your deposit and avoid selling an existing asset. Lenders will typically lend against up to 80 per cent of your current property's value without requiring lenders mortgage insurance, meaning if your home has increased in value since you bought it, the difference between what you owe and 80 per cent of the current value is accessible as equity.

That equity can be used as a deposit on your investment property, reducing or eliminating the need for cash savings. The lender will assess your ability to service both loans, so your income, existing debts and the expected rental income from the new property all factor into the approval. Accessing equity keeps your cash reserves intact for other holding costs or future investments, and it allows you to scale your portfolio without waiting years to save another deposit.

When structuring an equity release for a positively geared investment, the key is to borrow only what you need and to ensure the combined loan repayments across both properties do not exceed your rental income plus your salary after tax. A loan health check on your existing property before you apply can confirm how much equity is available and whether your current loan structure supports a top-up or requires refinancing to release the funds.

Tax treatment under the new negative gearing rules

For residential investment properties purchased on or after 7:30pm AEST on 12 May 2026, net rental losses from 1 July 2027 onward are quarantined and can only be offset against other residential rental income or carried forward to offset future rental income or capital gains. Losses cannot be deducted against your salary or other non-property income. Properties acquired before that date and time continue under the existing negative gearing rules, where losses can be deducted against salary and wages.

Positive gearing sidesteps the quarantine rules entirely because your rental income exceeds your deductible expenses. You pay tax on the surplus income each year, but you are not relying on a tax deduction to make the investment affordable. For buyers entering the market now, that makes positive gearing the more predictable strategy, particularly if you expect to hold the property beyond 1 July 2027 when the new rules take effect.

Eligible new build properties remain exempt from the quarantine and retain access to negative gearing in the traditional sense. If you are considering a newly constructed townhouse or a property that increases the dwelling count on a block, that exemption may influence your choice between an established home and a new build in Croydon.

Structuring repayments to stay cash positive as rates change

Your cash flow margin is the difference between weekly rental income and weekly holding costs. When that margin is narrow, even a small rate rise can turn a positive outcome into a loss. Building a buffer into your loan structure means choosing a deposit size, loan term and repayment type that leave room for rates to move without forcing you to top up repayments from your salary each month.

One approach is to borrow at a lower LVR by contributing a larger deposit. A 70 per cent LVR loan costs less each month than an 80 per cent LVR loan on the same property, and the lower your loan balance, the less impact each rate rise has on your repayments. Another approach is to hold part of your deposit in an offset account linked to the loan. The offset reduces your interest cost without locking the funds inside the loan, so you keep access to cash for maintenance, vacancies or other holding costs that arise during the year.

If your cash flow margin is tight, structuring the loan with the ability to extend the interest-only period or switch lenders without penalty gives you options if rental income does not grow as quickly as you expected. Not all loan products allow extensions, and some lenders charge higher rates on interest-only loans for investors, so comparing loan features before you settle matters as much as comparing headline rates.

Call one of our team or book an appointment at a time that works for you. We will walk through your rental income, holding costs and loan structure to confirm the numbers work before you commit, and we will stay in touch as your circumstances or the market shift so your loan keeps working the way it should.

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