Investment property cash flow: what will it cost you to hold?

Start with an annual holding budget

A practical starting point is expected rent less loan payments and other cash costs. Build this before allowing for any assumed tax benefit. It shows the amount the property may require from your other income or savings.

Moneysmart identifies ongoing property costs and periods without tenants as considerations for property investors. Use actual quotes and records wherever possible.

Source: ASIC Moneysmart: buying an investment property.

An example with the assumptions visible

Illustration only: assume annual rent received of $36,000, loan payments of $30,000 and other cash costs of $10,000. The result is a $4,000 annual cash shortfall before tax—about $333 a month when averaged across the year.

That average is a budgeting measure. It does not mean the bills arrive evenly. If the rent is already adjusted for vacancy, do not deduct the same vacancy allowance a second time.

This is not a tax calculation or a client result. Record principal repayments separately from interest and ask your accountant to assess the tax treatment of the individual costs.

Put each assumption next to its evidence

• Rent: use the current lease or identify the source of an estimate.
• Loan payments: record the repayment type and when the amount may change.
• Operating costs: collect rates, insurance, management and strata information where relevant.
• Maintenance: distinguish known work from a general allowance.
• One-off costs: list purchase costs and initial works separately from the ongoing budget.

A simple spreadsheet can use four columns: item, annual amount, source and confidence. Mark estimates clearly. The weakest assumptions become questions to resolve before committing.

Test a less comfortable year

Make a copy of the base budget. In that second version, change one assumption at a time: less rent collected, a repair bill, higher repayments or a period of lower household income. Record what each change does to the cash you would need.

Choose scenarios relevant to the property rather than presenting them as forecasts. The useful question is how you would fund the gap and what commitments would compete for the same money.

Connect the budget to the wider decision

The budget is one input. Ask your accountant about tax treatment, your broker about lending assumptions and your solicitor about transaction obligations. Compare the proposed property with the commitments you already have.

Read offset vs redraw if the deposit involves moving money between loan accounts. Explore ownership structures before choosing the buyer, and bring your budget to a property tax Initial Review.