Is Neutral Gearing the Right Strategy for You?
Your gearing is positive when your rental income is higher than your expenses (loan interest, rates, insurance, maintenance and so on), meaning you're making a profit and paying tax on it.
It's negative when your expenses outweigh your income, meaning you're running a loss that you can (for now) offset against your other taxable income.
Sitting neatly between the two is a neutrally geared property, sometimes called a neutral cashflow property, where your rental income roughly matches your expenses.
No profit, no loss.
Neutral gearing won't get you a tax deduction, but it also won't leave you topping up a shortfall out of your own pocket each month, which makes it a genuinely appealing option for a lot of investors.
Property Type and Land to Asset Ratio
Whether a property is likely to be negatively, positively or neutrally geared often comes down to its land to asset ratio: the proportion of the property's value sitting in the land versus the dwelling.
An established property, where most of the value is tied up in the land, typically carries a lower rental yield and is more likely to be negatively geared.
A new property, where most of the value sits in the dwelling rather than the land, typically carries a higher yield and is more likely to be neutrally or positively geared.
A Word of Caution
Before you chase yield, know this: higher yielding properties typically come with lower prospects for capital growth. There's no free lunch here, so it pays to be deliberate about your strategy.
Are you prioritising cashflow, capital growth or a balance of both? Getting clear on this upfront will save you a lot of second guessing later.
The 2026 Budget Changes to Negative Gearing
If you're leaning towards a negatively geared strategy, the rules have shifted.
From 7:30pm (AEST) on 12 May 2026, negative gearing is no longer available for established residential properties purchased after that time, though eligible new builds remain exempt, along with properties you already owned or had under contract before then.
We've broken down exactly what this means for investors in our blog on the negative gearing changes.
Already Own a Home? You Might Have a Back Door into Negative Gearing Benefits
If you purchased your home before 7:30pm on 12 May 2026 and later decide to turn it into an investment property, the grandfathering rules mean negative gearing is still on the table for you, even under the new rules.
Choosing the Right Ownership Structure
The right ownership structure for your property often comes down to how it's geared, your income and your long-term plans.
A negatively geared property might make more sense in one person's name to maximise a tax deduction, while a positively or neutrally geared property might suit a different structure entirely. It's worth getting this right from the outset, since restructuring later can be costly.
Gearing Isn't Fixed, It Changes Over Time
It's worth remembering that gearing isn't a permanent label, it shifts as your property matures.
A property might start out negatively geared, but as property values and rents grow over time, and your loan balance stays the same or reduces (particularly if you're paying principal and interest), the numbers gradually improve. At some point it will likely cross into neutral gearing, and eventually into positive gearing.
This is why your ownership structure needs to account for how gearing will change over time, especially if you're planning to hold the property long term. What makes sense for a negatively geared property in year one may not be the best structure once that same property is generating a profit years down the track.
Need a hand?
If you're weighing up whether a neutral cashflow property fits your strategy, or want to talk through your ownership structure, gearing approach, or the impact of the recent negative gearing changes, reach out to us.
Our support, service and advice is ongoing and continues throughout your property investment journey.
Disclaimer - General information only. This blog is based on Budget announcements as currently released and is not financial, tax or legal advice. Final legislation may differ from the proposals outlined here. Please seek licensed credit and tax advice before acting on any of the information in this article.
