11 Sep Investment Property Cashflow Calculator
Sound Property’s Cashflow Calculator is a user-friendly tool for residential property investors, designed to give a quick estimate of the net operating income in the first year of ownership. The Property Cashflow Calculator combines the rental revenue and operating expenses of the property, with the percentage of income tax paid, to measure the net change in the investor’s weekly and annual income.
“If you fail to plan, you are planning to fail”
– Benjamin Franklin
Understanding the property cashflow, or the relationship between the income and expenses of an investment property, is extremely important. It can make be the difference between a solid long-term investment and a costly mistake. An investor should have a good indication of how the property impacts their overall position and be comfortable that the investment fits their financial capabilities and budget. Cashflow can be affected by a variety of factors such as interest rates, rental return, running costs and deposit amounts.
A user will be able to determine if the investment is negatively geared, positively geared or positive cashflow before tax concessions. Negatively geared means the investor must put money in each year to cover the difference between the total cost of the property (interest repayments, rates, insurance, maintenance, etc.) and the total income (rent and tax concessions). Positively geared means that after-tax concessions, and a tax rebate, the property is in a positive cashflow position. Positive cashflow property refers to the rental income exceeding all expenses without any tax concessions or rebate.
SOUND TIP : Most property investors improve their short-term cash flow by applying to the Australian Tax Office (ATO) through their accountant for a tax variation. This gives them their tax breaks in each wage packet, instead of waiting to the end of the year for a tax refund. Learn more about the ATO Variations here.
Step 1: Purchase Costs
This step captures the capital related costs of the property such as the purchase price, deposit and other initial costs. It calculates the stamp duty payable based on the Suburb + State entered. The user also has the ability to select ‘Cash’, or ‘Equity’ for the purchase costs if they are borrowing equity from another property. If ‘Equity’ is selected, the calculator will apply an interest charge to all purchase costs in the calculation.
The price of the property as reflected on the contract of sale or its most recent valuation.
The deposit can be entered as a $ amount or a % of the purchase price. It can be paid using ‘cash’ or borrowed ‘equity’ from another property. If ‘equity’ is selected, the calculator will apply an interest charge to all purchase costs in the calculation.
The Suburb and State the property is located.
Stamp duty is a government fee based on the purchase price and State. This automated result is applicable for Australian citizens only.
Solicitor or conveyancer fees for legal advice on the contract and settlement.
Due diligence costs such as building and pest inspections, soil test, surveys, strata searches etc.
Other Fees & Costs:
Other costs associated with the purchase such as a Buyer’s Agency fee or any other lending setup charges can be totaled here.
Step 2: Income and Expenses
This step requires the weekly income (rent) and various yearly expenses to be entered. Also, in this step are any interest or principal repayments based on whether the loan is ‘Interest Only’ or ‘Principal & Interest’. With ‘Principal & Interest’, the loan amount is repaid over a selected loan term. ‘Interest Only’ loans don’t pay down any of the loan, however will result in a better yearly cashflow position as no principal repayment is made.
Weekly Rental Income:
This is the amount of money received from a tenant. It can be expressed as a $ amount or a % of the purchase price (i.e. the rental yield). The annual amount is automatically calculated.
Annual Expenses- Council Rates:
Based on location, lot size etc. Please contact the local council or a rates notice for a guide to this amount. An average amount of $2,400 has been adopted as a default value.
Insurance or Strata Fees:
This is the annual strata/body corporate fee for a unit/townhouse or building insurance if the property is a detached house. An average amount of $2,000 has been adopted as a default value.
Other tax-deductible yearly costs incurred in running the property such as water rates, maintenance, cleaning etc.
This is an estimate of how many weeks the property might not have a tenant in the first year. An average vacancy of 2 weeks has been adopted as a default value.
The fee a property manager will charge for the management of the property and tenant. It is a % of the rental income. An average fee of 7% + GST has been adopted as a default value.
Interest on Loan – Loan Amount:
The loan amount is the money being borrowed for the property purchase. It will be automatically calculated based on the purchase price and deposit entered, or may be manually adjusted.
Loan to Value Ratio (LVR):
LVR is basically the loan amount as a percentage of the purchase price.
Lender’s Mortgage Insurance (LMI):
LMI is an initial fee charged by the bank if the loan amount is over 80% of the value of the property (i.e. LVR >80%). It is an automatically calculated estimate in this calculator. Please inquire with your lender for the exact amount payable.
With ‘Principal & Interest’, the loan amount is repaid over the selected loan term. ‘Interest Only’ loans don’t pay down any debt, however will result in a better yearly cashflow position.
The number of years when the loan is due to be paid off. Thirty (30) years has been adopted as a default value.
The interest rate being charged by the bank for any borrowed funds (i.e. interest on the new loan amount + the purchase costs if ‘Equity’ is selected in Step 1).
Step 3: Tax Factors
This step captures the yearly income or salary of the user and calculates the applicable ATO marginal tax rate. It also estimates the depreciation amount, or the tax deduction for the wear and tear over time on the property. The depreciation calculation comes courtesy of Washington Brown Quantity Surveyors.
Individual Gross Income p.a:
Purchaser’s gross income or salary. This does not take any other factors which can influence the amount of tax paid, such as the Medicare Levy, HECS contributions, any rebates, deductions or other levies into account. Please consult your tax specialist for further information
Estimated First Year Depreciation:
Depreciation is a tax deduction available to property investors. It allows you to claim a tax deduction for the wear and tear over time on any old or new investment property. This estimator is only a guide based on a few simple parameters. It is calculated using the ‘Diminishing Value’ rather than ‘Prime Cost’ method. Please refer to your tax specialist for the method best suited to your situation.
NOTE: If NO RESULTS appears the user will need to adjust some of the parameters to get a result. Usually, start by adjusting the ‘Standard of Finish’. For further help please refer to Washington Brown’s website.
Properties have been defined according to the following broad definitions:
House / Townhouse – Any freestanding residential property or strata titled residential building up to two levels above ground, the property may be adjoining other units within the complex.
Unit – Residential strata titled unit in a building with no lift.
Highrise – Residential strata titled unit in a building with a lift.
Commercial Property – Wholly owned commercial building or strata titled office.
Industrial Property – Wholly owned industrial building or one of many industrial units.
The approximate year the building construction commenced. If unknown the local council may be able to assist.
Standard of Finish:
The general quality and quantity of the building material & equipment. Some guides are below:
Low – e.g. Laminate benchtops, budget appliances, very basic inclusions etc
Medium – e.g Mid-tier quality appliances, split system a/c, standard inclusions etc
High – e.g Stone benchtops, high-end European appliances, ducted a/c, superior quality inclusions etc
Step 4: Cashflow Estimates
The final step of the calculator reveals the first-year results of the data entered. These calculations show the relationship between the property’s rental income and expenses, with and without tax implications (i.e. post-tax and pre-tax). The results are displayed in weekly and annual amounts. This step also includes an equity growth table where the user can enter a chosen average capital growth figure and see what the compounding effect of this growth is over a 10-year period. It also shows the remaining loan balance and subsequent equity the user may accumulate over this time.
Refers to the surplus or deficit of funds when expenses are subtracted from rental income. This figure is before any tax implications or rebate.
Incorporates the tax-deductible items such as depreciation and other claimable items to create a net taxable position for the investment. Depending on the tax rate of the user they may be entitled to a tax rebate for these losses which when added to the pre-tax position creates a final post-tax cashflow.
Please be aware that there are many factors that can influence your overall tax position and it is therefore highly recommended to seek advice from a qualified accountant or finance professional before making any investment decisions.
Equity Growth- Average Capital Growth p.a:
Enter a chosen average capital growth figure and see what the compounding effect of this growth is over a 10-year period. An average capital growth rate of 7% has been adopted as a default value.
Many definitions of the terms used in the Property Cashflow Calculator can be found here on our Glossary pages. Further help can be obtained by hovering over the ? on each screen. Alternatively, please Contact Us should you need assistance or have questions.
- Property Address – The address of the property
- State – The state of the property you are buying in
- Pre-purchase costs – Costs associated with due diligence or preliminary research on the investment
- Purchase Price – The amount the property costs
- Rates – Refers to the rates a local council will charge a landlord to raise revenue so they can provide services and infrastructure to the local area
- Building Insurance – An insurance policy that covers your home as well as other structures on your property such as garages, sheds, fences and in-ground pools
- Body Corporate – Annual contributions from a landlord. These are formed by the owners of a piece of land that is subdivided into flats, units or apartments in order to manage and maintain the common areas everyone uses, such as stairwells, the car park, or pool
- Letting fee – A fee that a property manager will charge a landlord to find a secure a tenant for the property
- Landlords insurance – Insurance policy taken out by a landlord to cover tenant related issues such as rental arrears and property damage
- Property Management Fee – Ongoing fee charged by a property manager which is a percentage of the annual rental income
- Loan amount – The amount being borrowing from the bank
- Loan to Value amount – Your Loan to Value Ratio (LVR) is calculated by dividing the loan amount by the value of the property, then multiply by 100 to get a percentage. Banks and financial institutions use this as a measure of whether you can afford the loan.
- Interest rate– The payment made by a borrower to a lender in return for the loan of money, in addition to the principal repayments.
- Annual interest – Amount payable on the loan from the bank
- Purchase price – The price paid for the property
- Standard of finish – Level of finish, refers to the standard of quality of fixtures and fittings
- Property type – House, unit, apartment, townhouse etc
- Construction year – Year the property was first built
- Tax rebate – Refund from the ATO that is reflective of your marginal tax rate
- Capital growth – is the increase in value of your property over time
- LMI – Lenders Mortgage Insurance. A one off fee the bank will charge a purchaser should the deposit be lower than 20%
- Rental Income – Rent payable from a tenant to a landlord
- Depreciation – a reduction in the value of an asset over time, due in particular to wear and tear
DISCLAIMER: Sound Property Group accepts no responsibility for the accuracy of data entered into the Property Cashflow Calculator, and its subsequent estimates. Results are not financial advice and are a general guide only. Always consult a qualified and licensed accountant or financial professional before making any decisions to invest. Please refer to the full disclaimer before using Sound Property Cashflow Calculator.
This article is provided for general information only and does not constitute personal advice, as it does not take into consideration your personal circumstances. Please consult a licensed tax or financial advisor before making any decision to invest.