Investment Property Cash Flow: The Numbers That Actually Matter

Almost every investment property is marketed on gross rental yield. It is the least useful number in the pack. What determines whether you can comfortably hold an asset through a rate rise or a vacancy is net cash flow after every real cost.

Build the full cost stack

Start with annual rent, then subtract each of the following honestly:

• Council rates, water and any strata or body corporate levies
• Landlord insurance and building insurance where applicable
• Property management fees, letting fees and lease renewal fees
• A vacancy allowance — two to four weeks per year is realistic in most markets
• A maintenance and capital reserve of roughly 1% of the property value annually
• Loan interest at a stressed rate, not today rate

Stress test before you buy, not after

Model your position with interest rates two percentage points above current pricing and with eight weeks of vacancy in the same year. If the result is a shortfall you could not fund from other income for twelve months, the deal is thinner than it appears.

Depreciation and structure

A quantity surveyor depreciation schedule on a newer property can materially improve after-tax cash flow, particularly in the first five years. Ownership structure — individual, joint, trust or company — affects both the tax outcome and future borrowing capacity, so it is worth deciding before contracts rather than after settlement.

Growth and cash flow are a trade-off

Higher-yielding regional stock supports itself more easily but typically grows more slowly. Blue-chip metropolitan property tends to grow harder while costing you money to hold. Neither is universally correct; the right answer depends on your surplus income, holding horizon and how many more purchases you intend to make.

The lending question

Servicing calculators vary widely between lenders in how they treat rental income, existing debt and negative gearing. Two lenders can differ by hundreds of thousands of dollars in borrowing capacity on identical figures. Choosing the right lender early protects your ability to buy again.

Our property and finance teams can run these numbers on a specific address before you commit.