Investment Property Calculator

An investment property may look profitable based on rent alone and still leave you contributing money each month once loan repayments and ownership costs are included.

Our investment property calculator estimates your property’s cashflow using the purchase price, loan, rental income, expenses, tax position and assumptions about future growth.

Use it to compare investment scenarios before you buy. Change individual inputs such as the deposit, interest rate or weekly rent to see which assumptions have the greatest effect on your projected cashflow. Your results are estimates rather than forecasts. Property values, rent, interest rates, expenses and tax outcomes may differ from the assumptions you enter.

How To Use The Investment Property Calculator

The calculator works through five parts of an investment property: the property itself, financing, rental income, ownership expenses and projected results.

Step 1: Property Details

Enter the property’s purchase price and your assumed annual capital-growth rate. Choose whether the property is a house, unit or townhouse. You also have the option to include depreciation. Treat the growth rate as an assumption rather than an expected return. A higher growth assumption has a large effect on long-term projections, even though it doesn’t improve the cashflow available to pay your mortgage today. Running the calculation with several growth rates gives you a better view than relying on a single optimistic estimate.

Step 2: Loan Details

Enter your deposit, investment loan interest rate, borrowing structure, repayment type. You can compare principal-and-interest repayments with interest-only repayments. An interest-only loan generally has lower repayments during the interest-only period because you aren’t reducing the principal. The debt also doesn’t fall through scheduled principal repayments during that period. This distinction matters when assessing an investment. Lower repayments may improve short-term cashflow, while principal-and-interest repayments progressively reduce the loan balance.

Step 3: Income Details

Enter your annual income, expected weekly rent and assumed rental-growth rate.Use a realistic rental estimate rather than the highest advertised rent you find in the suburb.A small difference in expected weekly rent compounds across a full year. An investment that appears comfortably cashflow positive under an optimistic rental estimate may look quite different after using a more conservative figure.

Your income is also relevant because the calculator incorporates estimated tax effects. Your individual tax outcome depends on your circumstances.

Step 4: Expenses

Enter the recurring costs of holding the property. Depending on the property, these may include:

• Council rates
• Landlord insurance
• Property-management fees
• Maintenance and repairs
• Water charges
• Strata or body-corporate fees
• Other recurring property expenses

Don’t assess an investment using rent and mortgage repayments alone.Costs such as strata, maintenance and management fees reduce the income available to cover your loan. Irregular repairs also deserve consideration even if the property hasn’t recently required any work.

Step 5: Results

The calculator projects cashflow over different periods using the assumptions you’ve entered. The existing tool provides projections for 1, 5, 10 and 30 years and incorporates factors including rent growth, loan repayments, property-value growth and estimated tax effects.

Pay attention to the assumptions behind the result.

A 30-year projection is particularly sensitive to changes in property growth, rental growth, interest rates and expenses. It is more useful as a scenario than as a prediction of what your investment will be worth in 30 years.

How To Read Your Investment Property Calculator Results

Start with cashflow.

Positive cashflow means the rental income included in your calculation exceeds the property expenses included in the calculation.

Negative cashflow means those expenses exceed the rental income, leaving you to fund the shortfall. Neither result tells you on its own whether the property is a good investment.

A cashflow-positive property may experience weak capital growth. A negatively geared property may increase substantially in value, but you still need enough income to fund the shortfall while you own it. The calculator lets you examine both sides of the investment rather than judging the property on rental income alone.

Test What Happens If Your Assumptions Are Wrong

This is where an investment property calculator becomes more useful. Run the calculation more than once.For example, compare your original scenario with:

• A larger deposit
• Lower weekly rent
• A higher interest rate
• A Lower capital growth
• Higher annual maintenance
• Several weeks without a tenant
• Principal-and-interest repayments instead of interest only

A property that remains affordable under less favourable assumptions gives you more room for unexpected costs than one that works only when every assumption goes to plan.

What Makes A Property Worth Investing In?

Investment property returns generally come from two sources. Cashflow is the difference between the property’s income and the expenses included in your calculation.

Capital growth is the increase in the property’s value over the period you own it. These measures answer different questions.

Cashflow tells you how the property affects your finances while you hold it. Capital growth affects the value of the asset and the equity you build if the property rises in value.

A property doesn’t need positive cashflow to increase your wealth, but a persistent cashflow shortfall needs to fit within your household budget.

Maintenance also deserves attention. Frequent repairs reduce your return and create costs that aren’t obvious when comparing properties based on purchase price and rent.

Gross Rental Yield Is Not The Same As Cashflow

Rental yield is useful for comparing properties, but it doesn’t tell you what you’ll have left after paying the bills.

Gross rental yield is generally calculated as:

Annual rental income ÷ Property value × 100

For example, a property renting for $600 a week produces $31,200 in annual rent.

On a $700,000 property:

$31,200 ÷ $700,000 × 100 = 4.46% gross rental yield

That 4.46% isn’t your investment return.

It hasn’t accounted for loan interest, council rates, insurance, property management, maintenance, strata costs, vacancies, tax or transaction costs. This is why our calculator asks for more information than the purchase price and weekly rent.

What Costs Should I Include In An Investment Property Calculation?

Include the costs you expect to pay rather than relying on a generic percentage of the property’s value.

Your expenses will depend on the property. A strata apartment may have substantial body-corporate fees but fewer exterior maintenance costs paid directly by the owner.

A freestanding house may have no strata fees but leave you responsible for more repairs and maintenance. Consider:

• Vacancy periods
• Council rates
• Investment loan repayments
• Building and landlord insurance
• Property-management fees
• Repairs and maintenance
• Land tax, where applicable
• Other property-specific expenses
• Strata or body-corporate fees
• Water charges payable by the owner

Purchase costs also matter when deciding how much money you need to complete the transaction, even when they aren’t part of the property’s recurring annual cashflow.

Don't Forget Vacancy When Estimating Rental Income

Receiving $600 a week doesn’t guarantee $31,200 of rent every year. A period without a tenant reduces your annual rental income while many ownership costs continue.

For example, two vacant weeks at $600 a week reduce annual rent by $1,200 before accounting for any reletting costs.

Testing a vacancy scenario helps show how dependent your investment is on continuous rental income. This becomes more important if your projected cashflow is already close to zero.

How Do Interest Rates Affect Investment Property Cashflow?

Interest is often a major expense for a leveraged property investor.

A higher rate increases the cost of servicing the investment loan and reduces cashflow, assuming everything else stays the same.

This makes the interest-rate field useful for stress testing.

Don’t stop after entering the rate you’re offered today. Run another calculation at a higher rate and look at the change in your monthly contribution. This gives you a clearer indication of how much room your budget has if financing costs rise.

Property Investment Guide 101

Learn the ins & outs of investing in properties from an experienced property investor and founder of Home Loan Experts, Otto Dargan.

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

Apply For An Investment Loan

A property calculator assesses the investment using the figures you enter. It doesn’t assess whether a lender will approve your investment loan.

Lenders separately assess your income, debts, living expenses, deposit, credit position and other commitments. They also apply their own rules when assessing rental income and loan repayments. If you’ve found an investment property and want to understand your finance options, call Home Loan Experts on 1300 889 743 or complete our free assessment form.