Cash flow is the money left over after your rent covers your loan repayments and your property costs. If you are thinking about an investment property in Baldivis, this number matters as much as the purchase itself. It decides whether your property feels comfortable or stressful month to month.
You do not need to be a finance expert to work this out. We will go through it one step at a time.
What Does Cash Flow Mean on an Investment Loan?
Cash flow on an investment loan is your rent, minus your loan repayments and all other costs of holding the property. If the number is positive, the property pays for itself. If it is negative, you top it up from your own pocket.
Some investors find the property costs more to hold than it earns, particularly early on. The aim is to know the number before you buy, so there are no surprises. A good starting point is understanding how much you can borrow, because the loan amount drives your repayments.
Your costs usually include the loan repayment, council rates, insurance, property management fees and repairs. If the property is in a strata complex, body corporate fees apply too. These ongoing costs are generally claimable at tax time while the property is rented or genuinely available for rent.
Interest Only vs Principal and Interest: How the Monthly Numbers Compare
An interest only loan has lower repayments because you pay just the interest, while principal and interest repayments also reduce the loan balance. The lower repayment helps cash flow now, but your debt stays the same size.
Here is an illustrative example. Consider an investor with a $500,000 loan at an example rate of 6.75% p.a. This rate is for illustration only and is not a current offer. Your actual rate will depend on your deposit size and lender.
- Interest only: about $2,812 a month
- Principal and interest over 30 years: about $3,243 a month
That is a gap of roughly $430 a month. Now say the property rents for $600 a week, which is about $2,600 a month. Before any other costs, the investor is about $212 a month short on interest only, or about $643 short on principal and interest.
The investor chooses interest only for the first few years to keep the monthly gap small. They also accept the trade-off. The $500,000 balance has not dropped, so they will need to start paying down the loan later, and the repayments will rise when that happens. They use a loan repayment calculator to check what the higher repayment would be. They then set aside the monthly saving rather than spending it.
If you want to compare the two structures for your own numbers, our team can run them with you. Our investment loans page explains the options in more detail.
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How Do Lenders Count Your Rental Income?
Lenders generally count only part of your expected rent when they assess your loan. APRA, the banking regulator, views a haircut of at least 20 per cent on expected rent as prudent, so no more than 80 per cent is counted.
In our example, $600 a week in rent would be treated as no more than $480 a week for assessment purposes. This protects you and the lender against empty periods and costs. Lenders also tend to place less weight on a rental appraisal than on actual rent received. How each lender treats this evidence differs, so ask before you apply.
Banks must also test whether you could cope if the interest rate rose by 3.0 percentage points above the loan rate. This is why your borrowing amount may be lower than you expect. It is also a handy reminder to leave room in your own budget for rate rises.
Building a Buffer for Vacancies and Repairs
A cash buffer is money kept aside to cover empty weeks, repairs and rate changes. Even a well-located property can sit vacant between tenants, and you still pay the loan during that time.
Baldivis is a suburb in Perth's south, within the City of Rockingham. We have not got a verified vacancy rate to share, so check current local figures with a property manager before you set your buffer.
An offset account can help with cash flow. It is a transaction account linked to your loan, and the money in it reduces the balance your interest is charged on. That also means the interest you are charged is lower, so the interest you can deduct is lower too. Fees and features of offset accounts vary by lender, so check the product terms, including whether an offset is full or partial. Offset balances do not lower the loan amount for lender risk calculations. If you are considering a variable rate, remember that your repayments can move up or down. A fixed rate gives certainty for a set time, but the terms vary by lender and may limit extra repayments.
Tax Rules That Can Change Your Cash Flow
Tax can ease the cost of holding an investment property, but the rules have changed recently. Please speak to your accountant before relying on any of this.
Interest on money borrowed to buy a rental property is generally deductible. On a principal and interest loan, only the interest part counts, not the part that repays the loan. If you borrow extra against the property for personal use, such as a holiday, the interest on that part is not deductible.
On negative gearing, properties held at 7:30pm AEST on 12 May 2026 keep the current treatment. Eligible new builds bought after that date also keep it. For established properties bought after that time, net rental losses from the 2027-28 income year can only be used against other residential property income. That includes capital gains on residential property. A loss that cannot be used straight away can be carried forward. This means you should not count on a tax refund to prop up your cash flow. Your accountant can tell you how the rules apply to your situation.
If you already own an investment loan, a refinance review may also show whether your current structure still suits your cash flow. And if this is your first purchase, our guide to buying your first investment property walks through the process. If you are also buying a home to live in, our Baldivis home loan page may be useful.
You do not have to work out these numbers by yourself. Call one of our team or book an appointment at a time that works for you, and we will work through your cash flow with you, step by step.
Frequently Asked Questions
What is cash flow on an investment loan?
It is the rent you receive minus your loan repayments and property costs such as rates, insurance and management fees. If the result is negative, you cover the shortfall yourself.
Does interest only improve cash flow?
Interest only repayments are lower in the short term because you do not repay the loan balance. The trade-off is that the debt stays the same, and repayments rise when principal and interest begins.
How much rent do lenders count?
APRA views a haircut of at least 20 per cent on expected rent as prudent, so no more than 80 per cent is counted. Each lender sets its own policy on what rental evidence it accepts.
Can I rely on negative gearing to help my cash flow?
The rules depend on when you bought the property and whether it is established or a new build. Speak to your accountant, as tax outcomes are not certain.
