Cash flow is the number that decides whether an investment property adds to your bank balance each week or drains it. Unlike yield, it counts the mortgage. This guide shows how to calculate it, what positive and negative cash flow mean, and why negative does not automatically mean bad.
Cash flow is simply the money left over — or the shortfall — after you take the rent and subtract every cost of owning the property, including the mortgage. Where rental yield measures the property as an asset and ignores your loan, cash flow measures what the property does to your wallet.
Our rental property calculator works out cash flow alongside yield, so you can see both at once.
Annual cash flow = Annual rent − Mortgage interest − All holding costs
Holding costs are the same ones that appear in a net yield calculation: council and water rates, landlord insurance, management fees, strata for units, maintenance, and an allowance for vacancy. The difference is that cash flow also subtracts the mortgage, which yield deliberately leaves out.
Take a property rented at $500 a week, bought with a $460,000 loan at 6.3%. The annual rent is $26,000. Mortgage interest is about $28,980. Add roughly $7,000 of other holding costs, and total outgoings are around $35,980.
Cash flow is $26,000 − $35,980 = −$9,980 a year, or about −$192 a week. This property is negatively geared: it costs the owner roughly $192 out of pocket every week before any tax effect.
A positive cash flow property puts money in your pocket each week — the rent more than covers the mortgage and costs. These are prized because they are self-sustaining: they do not rely on you topping them up from your salary, so you can hold more of them without straining your budget.
Positive cash flow is more common where yields are higher — units, regional properties, and lower-priced markets — and where you have a larger deposit, since a smaller loan means less interest.
A negatively geared property runs at a cash loss, like the example above. That sounds bad, and week to week it is a drain — but investors accept it in exchange for two things: the prospect of capital growth, and a tax deduction. The loss can usually be offset against your other income, reducing your tax bill. Our guide to negative gearing covers this in detail.
The pre-tax cash flow is only half the story. If a property is negatively geared, the loss reduces your taxable income, so the government effectively shares part of the shortfall through a lower tax bill. The higher your marginal tax rate, the larger that offset. Depreciation, which is a non-cash deduction, can improve the after-tax position further without costing you anything week to week.
This is why two investors can look at the same property and see different things: a high earner may find the after-tax cost quite manageable, while someone on a lower rate feels the full weekly pinch. Estimate your marginal rate impact with our income tax calculator.
If a property is more negative than you would like, a few levers can help: a larger deposit reduces the loan and its interest; a fixed rate can protect against rises; ensuring the rent is at market and minimising vacancy lifts income; and claiming all legitimate deductions, including depreciation, improves the after-tax result. None of these turns a poor property into a good one, but they can make a sound property easier to hold.
How do I calculate rental property cash flow?
Take the annual rent and subtract the mortgage interest and all holding costs — rates, insurance, management fees, strata, maintenance and a vacancy allowance. A positive result means the property pays for itself; a negative result means you top it up each week.
What is positive cash flow property?
A property where the rent more than covers the mortgage and all costs, leaving money in your pocket each week. These are easier to hold because they do not rely on your salary to fund them, and are more common where yields are higher.
Is negative cash flow bad?
Not necessarily. A negatively geared property costs you money weekly but may deliver capital growth and a tax deduction that offsets part of the loss. It is a deliberate strategy that relies on growth outweighing accumulated losses, so it carries real risk.
Does cash flow include the mortgage?
Yes — that is the key difference from yield. Cash flow subtracts mortgage interest and holding costs, so it shows the true weekly effect on your bank account. Yield ignores the mortgage entirely.
How does tax affect investment property cash flow?
If a property is negatively geared, the loss reduces your taxable income, so a higher tax bracket means the government offsets more of the shortfall. Depreciation adds a non-cash deduction that improves the after-tax position.