About the Can I Afford An Investment Property? Calculator
The Investment Property Calculator provides an estimate of how much an investment property will cost.
It combines the cash operating revenue, rent, and the cash operating expenses, with the change in the amount of income tax paid to measure the net change in the investor's income due to owning the investment property.
It is important to recognise that the results are only rough estimates and should not be treated as financial advice. Before making any investment decisions you should consult your financial adviser.
- Cash operating expenses are assumed to be evenly spread throughout the year. This means that the cash operating expenses are the same for each month of year 1.
- It is assumed the investor has an interest only loan. This means that the loan repayments only consist of the interest for the period. It is assumed that they are deductible for tax purposes.
- When calculating the "Change in tax paid" only the marginal tax rates applicable to Australian residents are used. The calculator does incorporate the Medicare Levy of 1.5 percent but does not take any other factors which can influence the amount of tax paid, such as HECS contributions, any rebates, deductions, levies and surcharges into account.
- A building allowance is calculated for investment properties constructed after 18 July 1985. For buildings where construction began between 19/7/1985 and 15/9/1987, building allowance is 4 percent of the construction cost, for 25 years after construction. For investment properties where construction began after 15/9/1987 the building allowance is 2.5 percent of the construction cost, for 40 years after construction.
- The calculator does not consider the depreciation allowance, from the depreciable items contained in the investment property, which may accrue to the owner of an investment property.
Explanation of Terms
Monthly Rental Income:
Monthly Rental Income is the rental income you receive each month. It can be increased each year by inserting a growth rate in Potential Rental Growth per annum.
Monthly Loan Repayment:
Monthly Loan Repayment is the value of monthly loan repayments, assuming interest only payments.
Monthly Cash Operating Expenses:
Monthly Cash Operating Expenses is the total of the tax deductible expenses associated with maintaining the property for the month. It increases by the growth rate input in Annual Increase in Operating Expenses.
Cash Flow is the cash revenues less the cash expenses. That is Rental Income less the Loan Repayments and Cash Operating Expenses. This measures the amount of cash you will receive, if it is a positive number, or the amount you will have to pay, if it is a negative number.
Annual Building Allowance:
Annual Building Allowance is the tax deduction which can be made for this property. The rate at which building allowance can be claimed is determined by when the property was built.
Annual Tax Profit/Loss on Property:
Annual Tax Profit/Loss on Property combines the cash flow generated by the property with the tax deductions to determine the profit or loss for accounting purposes. Building allowance reduces taxable income, the profit or loss for accounting purposes will be lower than the cash flow generated.
Change in Tax Paid:
The Change in Tax Paid measures the change in the amount of income tax the investor pays due to owning the investment property, compared to if they did not own the property. This is calculated based on the annual taxable income from other sources entered by the user. If the Change in Tax Paid is negative it means the user pays less tax. If it is positive it means the user pays more tax, relative to if they had not owned the investment property.
After Tax Profit/Loss on Investment:
The After Tax Profit/Loss on Investment combines the cash flow associated with the investment property with the tax effect of owning the investment property to measure the net effect of the investment. A positive number indicates a profit, a negative amount indicates an after tax loss.