Investment Property Calculator Australia

How the investment property calculator works out rental property cash flow

The calculator begins with the loan amount, which is the purchase price less the deposit percentage selected. Weekly rent is multiplied by 52 to give annual rent, and a property management fee of 7% of that rent is deducted automatically. The other annual costs entered by the user, such as council rates, insurance, maintenance and strata levies, are then deducted, followed by the annual cost of the loan. The result is the pre-tax cash flow, which is displayed per week and per year and labelled as positively or negatively geared.

A second calculation estimates the taxable result. Only the interest component of the loan is treated as deductible, because repayments of principal are not an expense for tax purposes. Under an interest-only loan the two figures are identical. Under a principal and interest loan, the calculator adds up the twelve monthly interest charges for the first year of a 30-year term. The taxable profit or loss is multiplied by the marginal tax rate selected, and the resulting tax saving or tax payable is applied to the pre-tax figure to produce the after-tax weekly cash flow.

Choosing the inputs: price, deposit, interest rate, rent and costs

The purchase price and deposit together determine the loan amount, which is ordinarily the largest influence on the result. A deposit of 20% or more generally avoids Lenders Mortgage Insurance, and the deposit may be drawn from savings or from usable home equity in an existing property. Lenders commonly price investment loans and interest-only loans above owner-occupier principal and interest loans, so the interest rate entered should be one quoted for the intended loan type. Testing a rate one or two percentage points higher shows how sensitive the cash flow is to a change in interest rates.

Weekly rent is best taken from recent leases of comparable properties in the same suburb, not from asking rents or a selling agent's estimate. The other annual costs field should include council and water rates, landlord and building insurance, repairs and maintenance, strata levies, land tax where it applies, and an allowance for letting fees. The management fee is already included at 7% and should not be entered twice. The calculator assumes full occupancy, so cautious users may reduce the weekly rent slightly to allow for a period of vacancy between tenancies.

Negative gearing and positive gearing under Australian tax rules

The Australian Taxation Office describes a rental property as negatively geared where deductible expenses exceed the rent received, and as positively geared where the rent exceeds those expenses. A net rental profit is added to the investor's other income and taxed at the marginal rate. Under the rules that have applied for many years, a net rental loss may be deducted from other income such as salary or wages, which reduces the tax payable. This is the treatment that the negative gearing calculator function of this tool applies when it estimates the after-tax position.

The rules are changing. In the 2026-27 Federal Budget the Government announced that, from 1 July 2027, negative gearing for residential property is to be limited to new builds. The ATO states that properties held at 7:30pm AEST on 12 May 2026 are exempt from the change. For established dwellings acquired after that time, published summaries of the measure indicate that rental losses from the 2027-28 income year are to be deductible only against residential property income, including capital gains, with unused losses carried forward.

The practical consequence is that the after-tax figure shown by the calculator is most relevant to properties held before the announcement, to eligible new builds, and to income years before the change takes effect. For an established property bought after the announcement, the pre-tax cash flow may be the more realistic guide to the holding cost from 1 July 2027. The detail of the legislation, including what qualifies as a new build, is technical, and a registered tax agent can confirm how it applies to a particular purchase.

Illustrative example: cash flow on a $600,000 investment property

Consider a hypothetical purchase at $600,000 with a 20% deposit, which leaves a loan of $480,000. At an illustrative interest rate of 6.00% on an interest-only loan, annual interest is $28,800. Rent of $550 per week produces $28,600 per year, a gross yield of 4.77%. Management at 7% costs $2,002 and other annual costs are assumed to be $5,000, which gives a net yield of 3.60%. The pre-tax cash flow is a shortfall of $7,202 per year, or approximately $139 per week, and the taxable loss is the same amount.

At a marginal tax rate of 39%, and assuming the loss is deductible against other income, the tax saving is approximately $2,809. The after-tax shortfall falls to approximately $4,393 per year, or $84 per week. At a marginal rate of 32% the after-tax shortfall is approximately $94 per week. If the same hypothetical loan is changed to principal and interest, annual repayments rise to approximately $34,534, of which approximately $28,640 is interest in the first year. The pre-tax shortfall increases to approximately $249 per week and the after-tax shortfall to approximately $196 per week.

The example illustrates two points. The tax saving reduces the shortfall and does not remove it, so the investor still funds most of the loss from other income. The higher outlay under principal and interest is not an additional cost in the same sense, because approximately $5,894 of the first-year repayments reduces the debt. With a 40% deposit, the same hypothetical property is close to cash flow neutral before tax, which shows how strongly gearing drives the outcome.

Rental property tax deductions, depreciation and capital works

The ATO groups rental expenses into three categories. Some may be claimed in the income year in which they are incurred, including loan interest, council rates, insurance, property management fees, and repairs and maintenance. Others are claimed over several years, including borrowing expenses, capital works and the decline in value of depreciating assets. A third group is not deductible, including expenses relating to private use, acquisition and disposal costs such as conveyancing, and second-hand depreciating assets acquired after 9 May 2017. Deductions are generally available only while the property is rented or genuinely available for rent.

Capital works deductions for the construction cost of a building and structural improvements are generally claimed at 2.5% per year over 40 years. Newly acquired depreciating assets such as appliances and carpets are written off over their effective lives. The calculator excludes both, which is a deliberately cautious simplification. These deductions do not involve a cash outlay in the year of the claim, so they may improve the after-tax position, particularly for newer buildings. Investors who wish to include them commonly obtain a depreciation schedule from a quantity surveyor and seek advice from a registered tax agent.

Capital gains tax and capital growth, which the calculator leaves out

The calculator measures income and holding costs for a single year and makes no assumption about capital growth. For many investors the expected increase in value is the principal reason for accepting a negatively geared position, but growth is uncertain and varies widely across the property market. Purchase costs such as transfer duty and legal fees are not deductible against rent. They generally form part of the cost base of the property and reduce any capital gain on sale. The BorrowWise stamp duty calculator estimates transfer duty for each state and territory.

Under the rules that apply at the date of writing, Australian resident individuals who have owned an asset for at least 12 months may reduce a capital gain by the 50% capital gains tax discount. The ATO states that, from 1 July 2027, the discount is to be replaced for individuals, trusts and partnerships by cost base indexation together with a 30% minimum tax rate on capital gains, and that the reforms apply only to gains accruing after that date. The eventual tax on sale therefore depends on the timing of ownership, and professional advice is advisable before a sale is planned.

How lenders and APRA treat investment property loans

Lenders do not assess an investment loan on the cash flow shown by the calculator. They generally count only a proportion of gross rent, to allow for vacancies and costs, and assess repayments at a rate above the actual interest rate. APRA expects authorised deposit-taking institutions to apply a serviceability buffer of 3 percentage points. Since 1 February 2026, APRA has also limited new lending at a debt-to-income ratio of six times or more to 20% of each lender's new mortgage lending, measured separately for investors and owner-occupiers, with an exemption for loans to purchase or construct new dwellings.

An interest-only period lowers the early outlay, and the interest-only option in the calculator shows the effect. ASIC's Moneysmart notes that repayments increase when the interest-only period ends, because the principal must then be repaid over the remaining term. The debt does not reduce during the interest-only period, and the rate is commonly higher. The BorrowWise borrowing power calculator provides a general indication of lending capacity, and the mortgage repayment calculator shows the principal and interest repayment that would apply once an interest-only period expires.

Common mistakes when estimating investment property returns

A frequent error is to treat the tax saving as a return. A loss of one dollar produces a tax saving of less than one dollar at any marginal rate, so a negatively geared property costs money each year until rent rises, the debt falls or the property is sold at a gain. A second error is to underestimate costs by omitting land tax, strata special levies, letting fees, periodic repairs and vacancy. Moneysmart cautions investors not to rely on rental income to cover the mortgage, because there may be periods without a tenant.

Other common mistakes include using an owner-occupier interest rate for an investment loan, assuming that the present interest rate will persist, and overlooking entry and exit costs such as transfer duty, legal fees and agent's commission. Selecting the wrong marginal tax rate also distorts the result. The rates offered by the calculator, 17%, 32%, 39% and 47%, reflect 2026-27 resident rates including the 2% Medicare levy. A large rental loss or profit may move part of an investor's income into a different bracket, which a single marginal rate cannot capture.

Acting on the result and related decisions

The most useful application of the result is a test of affordability. Where the calculator shows a weekly shortfall, the investor may consider whether that amount could be funded comfortably from other income for several years, including at a higher interest rate and during a vacancy. Running the scenario at the current rate, and again at a rate two percentage points higher, gives a reasonable range. A cash reserve for repairs and vacant periods reduces the likelihood of a forced sale at an unfavourable time.

Several related decisions follow. The rental yield calculator allows properties to be compared on income alone, including a vacancy allowance. The home equity calculator estimates the usable equity that may fund a deposit, and the guide to fixed and variable loans explains the choice of rate structure for an investment loan. Moneysmart also encourages diversification, so that an investor's wealth is not concentrated in a single asset or market. A licensed financial adviser, mortgage broker and registered tax agent can each address the personal aspects that a general calculator cannot.