Understanding Property Cash Flow
Cash flow is the lifeblood of property investment. It measures the actual money flowing in and out of your pocket each week, month, or year. Unlike yield (which measures income relative to price), cash flow tells you the real-world impact on your bank account -- how much a property costs you or pays you each pay cycle.
The formula is: Cash Flow = Rental Income - Total Expenses. Expenses include mortgage repayments, council rates, water rates, insurance, property management (typically 7-10% of rent), maintenance (budget 1% of property value per year), strata/body corporate levies, and a vacancy allowance.
Why Cash Flow Matters More Than You Think
Many investors focus solely on capital growth and overlook cash flow -- until interest rates rise. A property that costs $200 per week at a 4% interest rate could cost $350 per week at 6%. That additional $7,800 per year must come from somewhere. Cash-flow analysis helps you stress-test your ability to hold a property through different rate environments.
Principal and Interest vs Interest-Only Loans
Interest-only loans dramatically improve cash flow because you are not repaying principal. On a $500,000 loan at 6%, monthly repayments are $2,500 (interest only) versus $3,000 (principal and interest over 30 years). That is $500 per month difference. However, interest-only periods are temporary (typically 1-5 years for investors), and you are not building equity during that time.
The Hidden Costs Investors Forget
Vacancy is the silent cash-flow killer. Even one month of vacancy per year on a $600/week rental costs $2,600 in lost income. Budget for at least 2 weeks vacancy per year, or 4 weeks if the property is in an oversupplied area. Maintenance surprises (hot water systems, roof repairs, plumbing) can also blow a budget. Our negative gearing changes explainer explains why tax offsets need to be checked against the Budget 2026-27 transition rules.