Do you know what makes a rental property stack up?

Rental yield is the first filter, not the last

Rental yield tells you what percentage of the property value comes back to you as rent each year. Calculate it by dividing annual rent by purchase price. A property returning $450 per week on a purchase price at the suburb's current median gives you a yield figure. If that number sits below 4 per cent in a regional market or below 3 per cent in a capital city, the property will likely cost you money every week even before you factor in vacancies or repairs.

Consider a detective looking at a two-bedroom unit returning $420 per week. Annual rent is $21,840. If the unit sits at the lower end of the local price range, the yield might clear 4.5 per cent. If it sits at the premium end, yield could drop below 3 per cent. The same weekly rent delivers a different outcome depending on what you pay. Rental yield filters out properties where the numbers won't work before you spend time on inspections or finance applications.

The weekly shortfall tells you what comes out of your pay

Most investment properties cost more to hold than they return in rent. That shortfall comes directly from your after-tax salary. Work it out by adding your loan repayment, council rates, insurance, strata fees if applicable, and property management fees, then subtract the weekly rent. The result is what you'll be transferring from your offset account or transaction account each week to cover the property.

In our experience, detectives often underestimate how body corporate fees and insurance premiums add up on older unit blocks. A $500,000 loan on a variable rate at current levels might cost roughly $650 per week in repayments on principal and interest. Add $40 per week for rates, $25 for insurance, $80 for strata levies, and $35 for property management at 8 per cent of rent. Total outgoings sit around $830 per week. If rent is $450, the shortfall is $380 per week, or close to $20,000 per year. That figure is what you need in genuine surplus income after your own living costs and existing debts.

Interest-only loans reduce the weekly cost but delay the payoff

Switching to interest-only repayments cuts your weekly loan cost because you're not paying down the principal. On the same $500,000 loan, interest-only repayments might drop to around $480 per week at current variable rates. Your total weekly outgoings fall to roughly $660, and the shortfall against $450 rent drops to $210 per week instead of $380.

The offset is that the loan balance stays at $500,000 for the entire interest-only period. You're relying entirely on capital growth to build equity. If the property doesn't appreciate, you're no closer to owning it outright after five years than you were at settlement. Interest-only works when you're holding multiple properties and want to maximise cash flow, or when you're planning to sell within a defined timeframe and want to minimise holding costs. It doesn't work if your income is uncertain or if you're counting on forced equity through principal reduction.

Vacancy rates and tenant turnover eat into your annual return

Vacancy rate is the percentage of the year a property sits empty. In tighter rental markets, vacancy might be one or two weeks per year. In oversupplied areas or at the upper end of the price range, it can stretch to six weeks or more. Each week without a tenant is a week you're covering the full holding cost from your own pay.

Property managers quote an average vacancy rate for each suburb, but the figure varies by property type and price point. A three-bedroom house close to schools and transport will rent faster than a one-bedroom apartment in a block with fifty similar units. Factor in at least four weeks of vacancy per year when you're calculating cash flow, and add another week for maintenance or repairs between tenants. Five weeks at $450 per week is $2,250 in lost rent, or roughly another $45 per week averaged across the year. Add that to your shortfall calculation.

Location-specific income matters more than price growth potential

Some detectives default to looking at suburbs with strong capital growth history and then try to make the rent cover the holding cost. That approach works in reverse. Start with areas where median rents are high relative to median prices, then assess whether those areas also have growth drivers like infrastructure projects, employment nodes, or constrained supply.

Regional centres with university campuses, hospitals, or defence facilities often deliver higher yields than metro fringe suburbs because demand for rentals is stable and purchase prices haven't caught up. The risk is lower liquidity when you need to sell, and potentially slower capital growth. Metro areas with good yield tend to be further from the CBD or in pockets where amenity is moderate but transport access is reliable. You're weighing cash flow today against potential sale price in ten years. Neither answer is wrong, but the choice shapes how much you'll need to top up the property each month and how long you'll need to hold it before it becomes cash flow neutral.

Borrowing capacity shrinks faster with investment debt than owner-occupied debt

Lenders assess rental income at 80 per cent of the lease amount to account for vacancies and management costs. If your property returns $450 per week, the lender will only credit you with $360 per week in serviceability calculations. Meanwhile, all your loan repayments, strata fees, rates, and insurance are counted at 100 per cent. The net effect is that every investment property you add reduces your borrowing capacity more than an owner-occupied purchase of the same value.

This becomes relevant when you're planning to buy a second property or upgrade your own home later. A detective earning $110,000 per year might qualify for a $600,000 owner-occupied loan with no other debt. Add a $500,000 investment loan with a $380 per week shortfall, and that borrowing capacity can drop by $150,000 or more depending on the lender's assessment rate and your other commitments. Knowing that number before you buy helps you decide whether to aim for a lower purchase price, a higher-yielding property, or whether to delay the investment until after you've secured your next home.

Claimable expenses reduce your tax but don't eliminate the shortfall

Interest, property management fees, council rates, insurance, strata levies, repairs, and depreciation are all claimable against your rental income. If your total claimable expenses exceed your rental income, the loss can be offset against your salary under the current negative gearing rules for properties held before the legislative changes. That offset reduces your taxable income and increases your refund or reduces your tax payable.

For properties purchased on or after 7:30pm AEST on 12 May 2026, rental losses are quarantined from 1 July 2027 unless the property qualifies as an eligible new build. Losses can still be carried forward and offset against future rental income or future capital gains, but they won't reduce your tax on salary. The weekly shortfall is the same either way; what changes is whether you recover some of it at tax time or wait until you sell. Detectives buying established property now need to model cash flow without assuming a tax refund will cover the difference.

Loan structure and offset accounts change how much interest you pay

Most lenders let you split your investment loan between variable and fixed portions, or between interest-only and principal-and-interest. Putting part of the loan on a fixed rate locks in your repayment for that portion and protects you if rates rise. The variable portion gives you flexibility to make extra repayments or redraw if the loan allows it.

Offset accounts linked to the variable portion reduce the interest you're charged without physically paying down the loan. If you have $30,000 sitting in an offset account against a $500,000 variable loan, you're only charged interest on $470,000. That saves you roughly $60 per week in interest at current rates, which flows straight to your cash flow. The offset balance also remains accessible, so you're not locking funds into the loan. Lenders typically charge a slightly higher rate or annual fee for offset facilities on investment loans, but the flexibility is worth it if you're managing irregular income from shift penalties or overtime.

Portfolio growth depends on equity release and serviceability headroom

Once your first investment property increases in value, you can access that equity to fund the deposit on a second property without selling. Lenders will typically lend up to 80 per cent of the property's current value without requiring lenders mortgage insurance. If your $500,000 property is now worth $580,000, you have $80,000 in equity above the 80 per cent threshold. That's enough to cover a deposit and costs on another purchase.

The constraint is serviceability. Even if you have the deposit, the lender still needs to see that your income can service both loans plus your own living expenses. Detectives with stable base salary and regular overtime or penalties are generally well positioned, but if your roster has changed or you've reduced hours, the lender will assess you on your lower current income. We regularly see buyers who have the equity but can't access it because their salary won't cover the additional debt. Before you start looking for a second property, ask your broker to run the numbers on your current income and existing commitments so you know what's actually available.

Stamp duty and settlement costs need to be funded upfront

Stamp duty on investment property is calculated at the standard residential rate in most states, without access to first home buyer concessions. In New South Wales, stamp duty on a $600,000 purchase is roughly $24,000. Add another $1,500 for legal fees, $500 to $1,000 for building and pest inspections, and any lender application fees. Total upfront costs sit around $26,000 to $28,000.

You can sometimes capitalise lenders mortgage insurance into the loan if you're borrowing above 80 per cent LVR, but stamp duty and settlement costs generally need to come from savings or equity in another property. Detectives using equity from their home will need a valuation on that property, and the lender will add the increased debt to your serviceability assessment. If you're using savings, keep in mind that the lender will want to see that money has been in your account for at least three months and that you'll still have a buffer left after settlement.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers on your income, your deposit, and the type of property you're looking at, and give you a clear view of what you can borrow and what it'll cost you each week.

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