Work out what an investment property costs you each week and what you are left with years later. Put in the price, the deposit, the rent and the running costs, and it runs the loan, the tax and the growth year by year. Nothing is saved and there is no sign-up.
Before you fall in love with a property
Find out what a lender will actually approve, and at what rate. Half a per cent on an $680,000 loan is more than every saving on this page put together.
What this actually tells you
Most investment property calculators tell you the rent and the repayment and stop there. That is the easy part. The useful numbers are what the place takes out of your pocket every week while you own it, and what you are left with at the end once the loan has shrunk and the value has moved.
This one runs it year by year. Each year the rent goes up by the figure you set, the loan balance comes down by the principal in your repayments, and the value grows by the rate you picked. It works out the tax you get back each year and takes it off the cost.
The growth rate is doing all the work
Change the growth figure from 4 per cent to 2 and watch the bottom line. On an $850,000 property held ten years, that one number moves the result by hundreds of thousands.
Everything else on the page is knowable. The rent is knowable. The rates bill is knowable. The growth rate is a guess, and it is the guess the whole deal rests on. Anyone who tells you what a suburb will do over ten years is guessing too, they are just doing it with more confidence.
Put in a number you would still be comfortable with if it turned out to be wrong, then look at whether the deal still makes sense.
The cash to get in is bigger than the deposit
A 20 per cent deposit on $850,000 is $170,000. The cash you actually need is closer to $205,000 once stamp duty, conveyancing, building and pest, and the loan fees are in.
Under 20 per cent deposit and lenders mortgage insurance lands on top, which on a 90 per cent loan is often another $15,000 to $25,000. Most lenders let you add it to the loan, which means you pay interest on it for thirty years.
Principal and interest, or interest only
This calculator assumes principal and interest, so part of every repayment is buying you equity. That is why the loan balance falls and the equity line grows faster than the value alone.
Plenty of investors go interest only for the first few years instead. The weekly cost drops, the loan does not, and the payments jump when the interest-only period ends. It is a cash flow decision, not a wealth decision, and it suits someone who is buying again soon more than someone holding one property for twenty years.
What eats the return
Vacancy. Two weeks empty between tenants is a fortnight of rent gone and it happens more often than people budget for.
The manager, at 6 to 8 per cent of the rent plus letting fees. Worth every cent if the alternative is you chasing rent, but it is real money.
Repairs, which do not arrive evenly. Nothing for three years, then a hot water system, a fence and an oven in the same quarter.
Land tax, which catches investors out because the family home is exempt and the investment is not. Once your land holdings pass the state threshold it becomes an annual bill that grows with land values.
Then the two at the end: the agent’s commission on the sale, and capital gains tax on the profit.
What this does not include
It holds the interest rate flat for the whole period. Rates will move, and the first few years matter most because that is when the loan is biggest.
It assumes one owner on one income. If you are buying with someone else, the loss and the refund split between you, and the tax back depends on each person’s rate.
It does not model lenders mortgage insurance, a fixed rate period, an offset account, or selling costs and capital gains tax at the end. General information only, not tax or financial advice.
Questions people ask
How much deposit do I need for an investment property?
Twenty per cent avoids lenders mortgage insurance, and you need the buying costs on top of it. Ten per cent is possible with insurance added, and some lenders will take less if you have equity in another property to use instead of cash.
Can I use the equity in my home instead of a cash deposit?
Usually yes. You borrow against the home to fund the deposit and costs, then take a separate loan for the rest. Keeping the two loans separate matters for tax, so set it up properly at the start rather than fixing it later.
Is a positive or negative property better?
Neither, on its own. A property that pays for itself is easier to hold, and a property that costs you money is only worth it if it grows enough to pay you back. The trap is judging either one without a growth number you actually believe.
Does the bank count the rent as income?
Most lenders count about 70 to 80 per cent of it, not the whole thing, because they allow for vacancy and costs. That is why the borrowing power figure is usually lower than people expect on their second property.
Related calculators
- Negative gearing calculator — the weekly holding cost in more detail, with depreciation.
- Borrowing power calculator — what a lender will actually let you buy.
- Capital gains tax calculator — what you hand over when you sell.
- Loan repayment calculator — the repayment, and what a rate rise does to it.
- Offset account calculator — where to park spare cash against the loan.
Want the real borrowing number?
A broker can tell you what you can buy, how much of the rent this lender counts, and whether your home equity can cover the deposit. One conversation, free.