Smart ways to approach positive gearing for pharmacists

Positive gearing means your rental income exceeds all holding costs, including loan repayments, before tax.

For community pharmacists with reliable income, a positively geared property delivers passive cashflow each month rather than an annual tax refund. You fund the shortfall from your salary with negative gearing. You collect surplus income with positive gearing. The difference shapes how quickly you can add a second property, manage variability in pharmacy hours, or build financial flexibility outside the dispensary.

Rental yield versus purchase price

Positive gearing turns on two variables: the yield you collect and the debt you carry. A property returning 6 per cent gross rental yield becomes negatively geared the moment your borrowing pushes interest costs above that figure. A property returning 4 per cent can remain positively geared if you use a large deposit or borrow against existing equity.

Consider a buyer who purchases a two-bedroom unit in a regional centre at a 5.8 per cent yield with a 40 per cent deposit. Interest costs sit below rental income even after body corporate fees and holding costs. The same buyer targeting a property closer to a metro area at a 3.5 per cent yield would need a deposit above 60 per cent to achieve the same outcome. Yield determines structure, and structure determines cashflow.

How loan structure changes the outcome

Interest-only repayments reduce monthly outgoings and improve the chance a property will be positively geared, but they do not reduce the loan balance. Principal and interest repayments build equity with every payment but increase monthly costs, often tipping a marginal property into negative territory.

Many investors start with interest only loans to preserve cashflow in the early years, then switch to principal and interest once rental income rises or a second property is added. The loan structure you choose should reflect whether your priority is monthly surplus or long-term debt reduction. Lenders typically offer interest-only periods of up to five years on investment loans, after which the loan automatically converts unless you apply to extend.

Tax treatment from 1 July 2027

Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, rental losses on residential properties purchased on or after 7:30pm AEST on 12 May 2026 can no longer be offset against salary or other non-residential income from 1 July 2027. Those losses are quarantined and can only be used against future rental income or capital gains on residential property.

Positive gearing is unaffected by this change because there is no loss to quarantine. If your property generates surplus income, you pay tax on that income at your marginal rate in the year it is earned. Properties that were positively geared under the old rules remain positively geared under the new rules. The reform removes a subsidy for loss-making investments but does not penalise cashflow-positive ones.

Eligible new residential dwellings built on previously vacant land, or dwellings that increase the total number of dwellings on a site, remain exempt from the quarantine and can continue to be negatively geared in the traditional sense. A knock-down rebuild that does not increase dwelling numbers is not eligible.

Variable rate versus fixed rate for rental properties

Most investors use a variable rate on investment loans because it allows unlimited additional repayments, full redraw access, and the ability to switch to interest-only or refinance without break costs. Fixed rates lock in your interest cost for a set period, which can help forecast cashflow, but they also lock in your repayment structure.

If you fix an investment loan at principal and interest and later want to switch to interest-only to improve cashflow, you will usually need to wait until the fixed term ends or pay a break cost. Variable products offer more flexibility to adjust repayment type, increase offset balances, or refinance the loan if a lower rate becomes available.

Vacancy rate and cashflow margin

A property that is positively geared at full occupancy can become negatively geared during vacancy. If your monthly surplus is narrow, a single vacant month can erase several months of positive cashflow.

In our experience, investors targeting positive gearing should calculate their margin with at least one month of vacancy per year included. Regional markets with higher yields often carry higher vacancy risk. Metro markets with lower yields may offer more stable occupancy but require larger deposits to reach positive cashflow. The strategy you choose depends on whether you prioritise yield or occupancy certainty.

Borrowing capacity and portfolio growth

Positively geared properties improve your borrowing capacity because the rental income exceeds the debt servicing cost. Lenders assess investment properties using actual rental income, less a reduction for vacancy and management, and compare that figure to the loan repayment calculated at the serviceability buffer.

A property generating surplus income strengthens your position for a second purchase. A negatively geared property reduces serviceability because the shortfall is treated as an ongoing expense. If your goal is to build a portfolio rather than hold a single asset, positive gearing allows you to add properties faster without waiting for salary increases or paying down existing debt.

Structuring the deposit and using equity

You can fund a deposit from savings, from equity in your home, or a combination of both. Releasing equity from an owner-occupied property and using it as a deposit on an investment property allows you to leverage equity without selling an asset, but it also increases your total debt and your monthly repayment on the original loan.

If the investment property is positively geared, the surplus income can cover part or all of the increased repayment on the equity release. If the property is negatively geared, you carry both the shortfall on the investment loan and the higher repayment on your home loan. The viability of this approach depends on the yield of the property you are buying and the rate you are paying on the equity you release.

Loan to value ratio and Lenders Mortgage Insurance

Borrowing above 80 per cent loan to value ratio on an investment property triggers Lenders Mortgage Insurance, which is added to your loan balance and increases your total debt. LMI does not reduce your interest rate or improve your cashflow. It protects the lender, not you.

For a property to remain positively geared at a high LVR, the rental yield needs to be meaningfully above the interest rate after you account for the capitalised LMI premium. In most cases, investors targeting positive cashflow use a deposit of at least 20 per cent to avoid the insurance cost and preserve the rental margin. Some lenders offer LMI waivers for pharmacists purchasing owner-occupied property, but these generally do not extend to investment loans.

Claimable expenses and calculating surplus

Rental income is assessable income. Interest on the investment loan, council rates, water charges, body corporate fees, property management fees, landlord insurance, and depreciation on the building and fixtures are all claimable expenses. Positive gearing means your assessable rental income exceeds your claimable expenses before you apply depreciation.

Depreciation does not involve a cash outgoing but still reduces your taxable income. A property that is positively geared on a cash basis can show a tax loss once depreciation is included, giving you both monthly surplus and a deduction at tax time. This outcome is more common with newly built properties where depreciation schedules are higher.

If you are buying an established property, calculate your surplus using cash costs only. Stamp duty and conveyancing fees are not deductible in the year of purchase but may form part of the cost base for capital gains tax when you eventually sell.

When positive gearing suits pharmacists

Positive gearing suits investors who want monthly income now rather than relying on a future tax refund to subsidise holding costs. It works well for pharmacists with variable hours, locum income, or those planning parental leave, sabbatical, or a transition to part-time work.

It also suits buyers who want to add a second property within a few years, because surplus income improves borrowing capacity faster than paying down debt on a negatively geared asset. If your goal is capital growth in a high-demand metro area and you have stable full-time income, negative gearing may deliver better long-term returns. If your goal is cashflow, risk reduction, or portfolio expansion, positive gearing is the more direct path.

Call one of our team or book an appointment at a time that works for you. We work with lenders across Australia and can model the cashflow on any structure before you commit.

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