- Get rental appraisals from at least two local property managers, not just one
- Cross-reference with current listings on property listing sites for comparable properties
- Factor in a vacancy allowance of 2-4 weeks per year (even in tight rental markets, you will have vacancies between tenancies)
- Consider seasonal fluctuations β some markets have stronger rental demand at certain times of year
Vacancy Adjustment
Using the gross rent figure without adjusting for vacancy is a common mistake. If the weekly rent is $500, your annual gross rent is $26,000 β but with a 3-week vacancy allowance, your effective income is $24,500.
Mortgage Impact Comparison
Landlord Insurance
Do not skip landlord insurance. A single problem tenant can cost you $10,000-$30,000 in lost rent and property damage.
Strata Levy Ranges
Typical strata levies range from $600 to $2,000 per quarter ($2,400 to $8,000 per year). Luxury buildings with amenities such as pools, gyms, and concierge services can charge $3,000-$5,000+ per quarter.
Maintenance Budget
Budget 1-2% of the property value per year for maintenance. For a $600,000 house, that is $6,000-$12,000 annually. Newer properties will be at the lower end; older properties at the upper end.
Victoria Land Tax
Land tax can be a significant cost, particularly in Victoria where the threshold is very low ($50,000). Factor it in from day one.
Depreciation Value
For a relatively new property, depreciation deductions can be $8,000-$15,000+ in the first year, significantly improving your after-tax cash flow position.
Negative Gearing Risk
Capital growth is never guaranteed. If the property does not grow in value as expected, you have been subsidising someone else's housing for years with nothing to show for it.
Balanced Strategy
Most sophisticated investors seek properties that are close to cash flow neutral after tax β costing very little to hold while still being located in areas with solid growth fundamentals. This approach gives you the best of both worlds: manageable holding costs with genuine upside potential.
Cash Flow Result
- Pulling in real rental data for accurate income projections
- Including every expense category so nothing is missed
- Modelling multiple scenarios (interest rate changes, vacancy periods, maintenance spikes)
- Calculating after-tax returns based on your marginal tax rate
- Providing clear, comparable outputs across multiple properties
- Include every expense β the costs you forget to model are the costs that erode your returns
- Use realistic vacancy allowances β no property is rented 52 weeks a year, every year
- Budget generously for maintenance β especially for older properties
- Understand your after-tax position β pre-tax cash flow tells only half the story
- Model multiple scenarios β what happens if rates rise 1%? If the property is vacant for 6 weeks? If a $10,000 repair is needed?
- Revisit your analysis annually β rents change, expenses change, and your tax position evolves
