Investment Property Calculator

Cashflow in investment property refers to the money left over after paying all property-related expenses, including mortgage repayments, maintenance, council rates, insurance, and property management fees. Essentially, it’s the difference between your rental income and costs.

Each investment property should be viewed as a mini-business with its own income and expenses. Depending on the balance, you’ll either make a profit or a loss each week.

Positive cashflow occurs when your rental income exceeds your expenses, providing you with a profit. Negative cashflow happens when your expenses surpass your rental income, requiring you to contribute funds to cover the shortfall.

Most properties start with negative cashflow, especially when first purchased. As the loan gets repaid and rents increase over time, however, they often become positively geared, meaning they generate positive cashflow. Some properties, especially in mining towns, remote areas, or unit blocks, may even have positive cashflow from the moment of purchase. Some strategies, such as taking short-term rentals through platforms such as Airbnb, can sometimes make achieving positive cashflow easier.

Negative gearing can be a beneficial strategy for investors with high taxable incomes, particularly those in the top tax brackets, provided the property has strong capital growth potential.

Understanding and managing cashflow is critical for ensuring your investment property remains financially viable, regardless of whether you aim for short-term profit or long-term growth.

In Australia, rental income is considered taxable income and must be declared in your annual income tax return. The tax you pay on rental income depends on your overall taxable income and your marginal tax rate, as set by the Australian Taxation Office (ATO).

Note: The above rates do not include the Medicare levy of 2%.

Yes, investment loans are tax deductible. If you borrow money to purchase an investment property, the interest you pay on the loan is generally tax-deductible, as long as the property is generating rental income. This deduction applies specifically to the interest component of your repayments, not the principal.

Many property investors opt for interest-only loans to maximise their tax benefits from these deductions.

In addition to interest, other common tax-deductible expenses for investment properties include:

• Advertising for tenants
• Repairs and maintenance
• Utilities paid by the owner
• Legal and property management fees
• Insurance

Only repairs that fix existing damage or general wear and tear are immediately deductible. In contrast, improvements or renovations like upgrading a kitchen are considered capital works. These are not immediately deductible but can be claimed gradually over time through depreciation.

It’s also important to note that costs related to buying or selling the property, as well as any expenses paid by tenants, are not tax-deductible.

To calculate the investment value of a property, you can use the following formula: Investment value = Net operating income/capitalisation rate. Net operating income is the amount of money a property generates after paying all of its expenses, including mortgage payments, property taxes, insurance, and repairs and maintenance. Capitalisation rate (cap rate) is a measure of how much return an investor can expect to receive on their investment. It is calculated by dividing the net operating income by the property value. A property’s investment value will vary depending on the specific property and the market conditions. However, a general rule of thumb is that the investment value should be at least 7%.

In Australia, capital gains tax (CGT) on an investment property is based on the profit from selling the property. The capital gain is the difference between the sale price and the property's cost base, which includes the original purchase price, legal fees, stamp duty, and improvements.If you hold the property for more than 12 months, you may qualify for a 50% CGT discount, reducing the taxable gain. The capital gain is added to your taxable income, and the actual CGT payable depends on your income tax rate. Here’s a detailed breakdown of the calculation for Mark and Sarah’s capital gains on their co-owned rental property:

Our investment property cashflow calculator will automatically estimate many of the expenses associated with your property.

You may qualify for an LMI discount, so complete our free online assessment form to find out more.