The Active Home Loan Manager

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.

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.

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.

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.

This information in this article is general only and does not take into account your individual circumstances. It should not be relied upon to make any financial decisions. uno can’t make a recommendation until we complete an assessment of your requirements and objectives and your financial position. Interest rates, and other product information included in this article, are subject to change at any time at the complete discretion of each lender.

Add a Comment

Alexi Neocleous

With over 20 years experience, Alexi has written extensively a wide cross section of financial topics. These topics range from financial planning, mortgages, property commentary and all points in between.

Blog

You might also be interested in

uno lifts off new partnership with Velocity Frequent Flyer

At uno, our mission is to ensure our customers are always on a great deal – and that’s not just on their home loan. Today, we are able to announce an exciting new partnership with Velocity Frequent Flyer, the award-winning loyalty program of Virgin Australia.  This partnership means we are able to bring more great

Lenders roll out emergency bushfire package for affected communities

A number of home loan lenders have announced special measures and emergency packages to assist those affected by the ongoing bushfires.  We have compiled a list of lenders, contact numbers and links to their websites to help you get in touch quickly and get the support you need.  Below is a list of some of

The three wise benefits of refinancing

“Last Christmas, I forgot to refinanceSo the very next day, I still had to payThis year, to save me from tearsI’ll refinance with someone special…“ It’s a bit cringey, isn’t it? But while I’m clearly no George Michael in the song writing department, I do know a thing or three about refinancing mortgages. Don’t spend

Search.
Compare.
Settle.
Strut.

Get started

Find out if your home loan is any good

Get your loanScore