Positive vs Negative Gearing in Australia: Which Strategy Makes Sense in 2026?

Positive gearing and negative gearing are two of the most talked-about property investment terms, but many investors still don’t understand what they mean and which one is right for them.

The thing is, there isn’t a one-size-fits-all answer; the ideal strategy really depends on your income, financial goals, risk tolerance, and investment timeline.

With the Federal Government announcing major proposed changes to negative gearing and capital gains tax in the 2026 Budget, understanding the difference between these two strategies has never been more important.

What is positive gearing?

A property is positively geared when the rental income exceeds the property’s expenses.

For example:

• Rental income: $700 per week
• Mortgage, rates, insurance and expenses: $550 per week
• Positive cash flow: $150 per week

Put simply, the property puts money into your pocket each week. Positive cash flow properties are popular with investors who want to build additional income streams, reduce financial stress, and improve borrowing capacity.

The benefits of positive gearing: 

• Immediate weekly cash flow
• Extra income to help pay down debt
• Less reliance on tax deductions
• Greater financial flexibility
• Easier to hold long-term during market changes

If, as an investor, you’re looking for passive income or early retirement planning, positive gearing gives you stability and peace of mind.

What is negative gearing?

A property is negatively geared when the costs of owning it are higher than the rental income it generates.

For example:

• Rental income: $600 per week
• Expenses: $750 per week
• Loss: $150 per week

Why did investors accept these losses? It’s because they could claim the shortfall as a tax deduction while hoping strong capital growth would outweigh the ongoing costs. It’s been a popular strategy in Australia for decades, especially in major cities where property prices have historically experienced strong long-term growth.

What’s changing in 2026?

The 2026 Federal Budget introduced proposed reforms that seriously influence the investment landscape. Under the proposal, negative gearing for residential property would be limited to new builds from 1 July 2027, while the current 50% capital gains tax discount would be replaced for many future investors. Existing investors are expected to be grandfathered under the current rules.

It’s important to note that these measures are proposed and are not yet law, and regardless of what happens politically, it’s showing investors that they need to take a closer look at cash flow-focused property strategies.

So, which property investment strategy is best in 2026?

If you’re seeking strong cash flow and additional income, positive gearing looks pretty good. Why? Because positive cash flow doesn’t rely on tax benefits. Instead, the property generates income from day one, helping investors:

• Build wealth faster
• Reduce mortgage pressure
• Increase financial security
• Potentially reinvest in additional properties sooner

We’re not saying negative gearing is “bad.” We’ve seen many investors build wealth through negatively geared properties in high-growth locations. But the strategy has to align with your goals. It could be that your objective is to maximise capital growth over 15-20 years, so accepting lower cash flow today is okay. 

Alternatively, if your goal is to create an additional income stream, positive gearing may be better for you. 

Why do more Australians want high cash flow properties

At Phone Homes, we’re seeing growing demand from investors who want both potential capital growth and strong rental returns. Our team researches hundreds of opportunities across Australia to identify properties in locations with:

• Strong rental demand
• Infrastructure investment
• Population growth
• Employment opportunities
• Long-term growth potential

At Phone Homes, we’re here to help you secure investment properties that support your financial goals.

View our property investment services.

Ready to explore your investment options?

Whatever investment strategy you choose, Phone Homes can help. Our invitation-only property investment service gives you access to experienced property experts, personalised support, and carefully researched investment opportunities across Australia.

Book a free consultation with us today. Call 1300 159 804 or request a callback from the Phone Homes team.