You’ve got $27,500 coming in on the revenue side. Then we’ve got to factor in all of the costs:

They’re all included except for body corporate fees. Because, in this case, it’s a standalone property, there aren’t any.

All up, the expenses are $31,769.

And that means that at today’s interest rates, this property has higher costs than the rent it earns. Here’s how the numbers look:

The property is negatively geared by $4,269, or $82 a week.

This is pretty typical, even for a property bought a few years ago.

But .... what have I missed?

But, I missed one crucial part from this cashflow … did you spot it?

[Don’t just scroll down to see the answer. See if you can figure it out 😅]

It starts with a T.

It’s tax.

Even though the property has negative cashflow, there’s still income tax to pay on this property. Why?

Since it was bought a few years ago, it’ll come under the new interest deductibility rules.

So in this tax year, not all of the mortgage interest costs are tax-deductible.

In this example, the investor would pay $447 in tax in this financial year.

And that increases as the new tax rules are phased in.

That means that creating a cashflow is becoming more complicated.

So there are two key steps you need to take:

1) You can use the above process to work out the pre-tax cashflow for any property.

2) But, if you want a more accurate tool to help you forecast your cashflow, you can also download the spreadsheet I use with my investors.

It’s free to download and is called the return on investment calculator. And over 8,000 investors have downloaded it.

It takes in all the hard costs and factors in the tax changes.

>>> Download the ROI Spreadsheet here

Download 5

Andrew Nicol

Managing Director, 20+ Years' Experience Investing In Property, Author & Host

Andrew Nicol, Managing Director at Opes Partners, is a seasoned financial adviser and property investment expert with 20+ years of experience. With 40 investment properties, he hosts the Property Academy Podcast, co-authored 'Wealth Plan' with Ed Mcknight, and has helped 1,894 Kiwis achieve financial security through property investment.

View Profile