Investment Property Cash flow

Investment Property Cash flow

If you’re considering an investment property, it pays to spend time figuring out the cash flow implications of the property you’re purchasing – and the loan you’ll be servicing.
Alexi Neocleous
Alexi Neocleous

Working Out How Much You Earn From Your Investment Properties

Do you know if your property is negatively or positively geared? If not, you can use an investment property cashflow calculator to figure out how much your property earns each week. This creates your investment property cash flow.

What is Investment Property Cash flow?

Every property you own is a business unto itself. Each comes with separate income and expenditures, resulting in a profit or loss.

Your investment property cashflow relates to whether you make money from the property. If the weekly fees exceed the amount earned in rent, you have negative cash flow. This means you have to invest more money into the property to maintain it.

Many investors find their properties have negative cash flows at first. As the balance of the loan is paid down over time, and as rent received increases, the cash flow trends towards the positive. While many investors aim for this, there are some who can benefit from negative cash flows. In particular, investors in the higher tax brackets can use negative cash flow to their advantage. This allows them to benefit from negative gearing and the tax benefits that come with it.

It depends on your situation. Talk to an expert to find out if aiming for a positive or negative cash flow is right for you.

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More about Negative Gearing

Negative gearing is a complex concept. It involves making losses on cash flow. Investors can claim these losses as deductions on their tax returns. They can then put these deductions back into the investments.

A simple example works as follows:

You have an income of $200,000. Your investment property has a negative cash flow, leading to a loss of $20,000 per year.

You can deduct $20,000 from $200,000 to create a taxable income of $180,000. That’s the first benefit.

Now, let’s say your tax rate is 49% (which is what it would be on a $200,000 income, including the Medicare Levy and the Temporary Budget Repair Levy). By deducting the $20,000 loss from your income, you will reduce your tax payable by $9,800.

Of course, it can be more complicated than that in practice. A tax advisor can help you if you feel that you can use negative gearing to your advantage.

How much can I borrow?

Use uno's calculator to estimate your borrowing capacity.

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You can use uno’s calculator to work out whether an interest-only home loan is more costly than a principal and interest loan.

Remember that this is a guide. You should talk to an adviser for a more comprehensive look at your cashflow.

Alexi Neocleous
Alexi Neocleous

* Two year fixed rate, owner occupier, P&I package loan with a maximum LVR of 70% and a loan amount >=$150k. Lender rates and products may change. We cannot suggest you remain in or switch to any loan until we complete our assessment. Fees and charges apply. ^WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rate is calculated on the basis of a loan of $150,000 over a term of 25 years. ± All loan applications are subject to uno assessment and lender approval. uno does not guarantee that it will be able to find a customer a better loan than the one they currently have or to save them money.