5 Ways Positive Gearing Builds Wealth for ADF Members

What Positive Gearing Means for ADF Investors

Positive gearing occurs when the rental income from an investment property exceeds all holding costs, including loan repayments, insurance, rates and management fees. The surplus is taxable income, but the property pays for itself from day one and generates cash flow you can use or reinvest.

For ADF members posted to Kapooka or rotating through training cycles, positive gearing offers a different approach to property investment. You are not relying on tax refunds to subsidise a loss. Instead, the property contributes to your income while you serve, and you are not locked into holding it for decades to recover shortfalls.

Consider a member who purchases a three-bedroom house in a regional centre within two hours of Kapooka. Weekly rent sits at $480, generating $24,960 annually. With an investment loan of $400,000 at current variable rates and principal-and-interest repayments, annual loan costs come in around $22,800. Add $3,200 for rates, insurance, strata and management. Total holding costs: $26,000. The property runs at a small loss initially, but a rate discount or a modest rent increase within 12 months shifts it into positive territory. From that point, the member receives passive income while the loan balance reduces and the asset appreciates.

Rental Yields That Support Positive Cash Flow

Rental yield is the annual rent divided by the purchase price, expressed as a percentage. A yield above 5 per cent often indicates potential for positive gearing, depending on your loan amount and interest rate. Regional towns near major bases, including those within commuting distance of Kapooka, can deliver yields between 5.5 per cent and 7 per cent, particularly for older homes or properties requiring minor upgrades.

Higher yields typically come with trade-offs. Properties may be older, located further from capital cities, or in areas with slower capital growth. That does not make them poor investments. It means you are prioritising income over immediate appreciation, which suits members who value regular cash flow or want to build equity faster through principal repayments.

Kapooka sits just outside Wagga Wagga, a regional hub with consistent rental demand driven by defence personnel, students at Charles Sturt University, and agricultural industry workers. Properties in surrounding suburbs such as Uranquinty and Forest Hill attract tenants looking for affordability and proximity to the base. Vacancy rates in Wagga Wagga remain low, which supports stable rental income and reduces the risk of extended periods without a tenant.

Why Principal and Interest Loans Work for Positive Gearing

Principal-and-interest repayments are higher than interest-only repayments, but they reduce your loan balance with every payment. For a positively geared property, this structure accelerates equity growth without requiring you to find extra funds. The rental income covers the higher repayment, and the loan balance drops steadily over time.

Interest-only loans defer principal repayments for a set period, usually up to five years. This lowers your monthly costs and can help a property reach positive gearing sooner, but the loan balance does not reduce during the interest-only term. Once the term ends, repayments jump as you begin paying down the principal. For ADF members with variable income due to deployments or allowances, interest-only periods can provide short-term flexibility, but they extend the time required to build equity.

A member purchasing a $350,000 property with a 10 per cent deposit borrows $315,000. On principal and interest, repayments sit at roughly $1,900 per month at current variable rates. Rental income of $2,100 per month covers the loan and most other holding costs. After five years, the loan balance has reduced to approximately $280,000, and the member holds around $70,000 in equity if the property value remains flat. Switching to interest-only during that period would save around $500 per month in repayments but leave the loan balance at $315,000 after five years.

How ADF Members Access Investment Loan Features

Lenders assess investment loan applications differently to owner-occupier loans. Rental income is typically discounted by 20 per cent to account for vacancy periods and maintenance costs, meaning only 80 per cent of the expected rent is counted toward your serviceability. This can reduce your borrowing capacity compared to a home loan application, even if the property generates strong cash flow.

Most lenders require a deposit of at least 10 per cent for investment purchases, though 20 per cent avoids Lenders Mortgage Insurance and improves your interest rate. ADF members may access LMI waivers or reduced premiums through specialist loan products, which can lower upfront costs when purchasing with a smaller deposit.

Variable rate investment loans typically carry interest rates 0.3 to 0.5 percentage points higher than equivalent owner-occupier loans. Fixed rate options are available, though the gap between owner-occupier and investor fixed rates can be wider. Offset accounts and redraw facilities are offered by most lenders on variable investment loans, allowing you to park surplus funds against the loan balance and reduce interest costs without making additional repayments that lock funds away.

When to Refinance an Investment Loan

Refinancing an investment loan makes sense when your current rate is no longer competitive, when you want to release equity to fund another purchase, or when your lender has reduced the features available on your product. Investment loan refinancing can reduce your repayments, shift a negatively geared property into positive territory, or consolidate multiple loans into a single facility.

Rate discounts for investment loans are typically smaller than those for owner-occupier loans, but they still vary widely between lenders. A difference of 0.4 per cent on a $400,000 loan saves around $1,600 annually, which can be the margin between positive and negative gearing. If your loan is more than two years old and you have not refinanced or negotiated a rate review, there is a strong chance you are paying more than necessary.

Members who purchased investment property before interest rates rose may be holding loans with rates 1.5 to 2 percentage points higher than they were at settlement. Refinancing to a lower rate or switching from interest-only to principal-and-interest repayments can improve cash flow and accelerate equity growth. Some lenders offer equity release products that allow you to borrow against the equity in an existing investment property to fund a deposit on a second property, supporting portfolio expansion without requiring additional savings.

Call one of our team or book an appointment at a time that works for you. We work with lenders across Australia who understand ADF income structures and posting cycles, and we will find options that suit your situation and your service.

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