More from Opes:

• The "Can I Invest?" Test

• How to know if you can really afford an investment property top-up

• What is negative-gearing? and how does it affect my investment property?

#3 – Cashflow top-up: Can I afford to hold onto my property?

As well as the deposit and income required to buy an investment property, you also need to be able to hold onto it.

Right now, while interest rates are high, the rent won’t usually cover all the rental property’s costs.

This is sometimes called negative gearing. It’s very common when you borrow all the money to invest in property. i.e. you don’t have a cash deposit. 

About 90% of investment properties today are negatively geared. That’s according to Valocity, a data firm.

So, the investor needs to “top-up” the investment property’s mortgage.

This is typically somewhere between $350 – $500 a week.

This is the case whether you invest in a New Build or existing investment property.

For example, here are 3 different properties with the cashflow of each:

This assumes that you’re borrowing all the money to invest. If you have a big cash deposit, the top-ups will be lower.

But the cashflow of an investment property generally improves over time. This happens as rents rise and interest rates fall.

There are lots of different factors that impact the cashflow of your property, so you can either use:

• Our cashflow calculator below
• Download our return-on-investment (ROI) calculator, which will create a 15-year cashflow forecast for you.

This will give you a sense of whether you can afford an investment property on an ongoing basis.

Can I actually afford an investment property?

If you’re planning to buy a New Build property, you’ll need:

• $110k of useable equity (or cash) as a deposit
• Enough income to service the mortgage. Generally, a household income of $100k or more
• Enough spare cash to pay $350 - $500 a week to top up the property.

If, on the other hand, you plan to buy an existing property, you’ll need:

• $190k of usable equity (or cash) as a deposit and for renovations
• Enough income to service the mortgage. Generally, a household income of $100k or more
• Enough spare cash to pay $300 - $500 a week to top-up the property.

If you’ve read this article and worry you can’t afford an investment property right now – that’s OK. We can still help you.

There are a lot of people out there who want to get ahead financially, but who can’t get a loan to invest. At least, not yet.

That’s where you can read our investment-ready playbook. This gives you real strategies you can use to get investment-ready faster. You'll just need to create an account for Opes+ and find it under "guides and courses". 

This assumes that you’re borrowing all the money to invest. If you have a big cash deposit, the top-ups will be lower.

Cashflow can improve as rents rise or your mortgage rate falls.

There are lots of different factors that impact the cashflow of your property, so you can either use:

• Our property investment cashflow calculator {link}
• Head to Opes+. This will create a cashflow projection for you {link}

This will give you a sense of whether you can afford an investment property on an ongoing basis.

Why is the top-up different for each property?

No two properties or mortgages are the same, so top-ups vary based on:

• Purchase price
• Rent earned
• Mortgage size
• Ongoing costs (rates, insurance, maintenance, accounting, vacancy)
• Interest rates

If the costs are higher, or you have a big mortgage, the expenses are higher, so the top-up is larger.

This is why top-ups are more common with the No Cash Needed method {link} (borrowing the full amount). A bigger deposit means a smaller mortgage and usually a smaller top-up.

Keep in mind holding costs can still shift. For instance, if interest rates rise, your top-up rises too, so it’s worth stress-testing the numbers.

The: ‘Can I Invest?’ Test

Let’s say you want to buy an investment property. The rent doesn’t cover all the costs, so you need to top it up by $200 a week.

But you’re not sure whether you can afford that. That’s where you might use the ‘Can I Invest’ Test.

Put that $200 aside every week, as if you have already bought the property.

After 2-3 months, check in:

• Is the money piling up? or
• Have you been taking money out of that account to spend?

If you’ve managed to put the money aside without touching it … you’ve passed the test.

Here’s how to set up the test in 4 minutes:

• Open your bank app (time: 30 seconds)
• Create a new bank account – call it the ‘Can I Invest?’ account (time: 1.5 mins)
• Set up an automatic payment. If your top-up is $200 a week, automatically transfer that money into your ‘Can I Invest?’ account. (time: 2 mins)

If you get paid fortnightly, just do one fortnightly payment ($400 in this case). It doesn’t have to be weekly.

Same deal if you get paid monthly, but it must be automatic.

And it can often be useful if you set it up to automatically transfer the day after you get paid.

That way the money’s already moved before you even think about spending it.

Can I afford an investment property?

To afford an investment property you need more than a deposit. You also need enough income for the bank to lend to you and enough spare cash each week to hold the property.

That’s why the best place to start is with your own numbers.

Do you have enough deposit or usable equity? Will the bank lend you enough? And after paying your normal bills, do you still have enough left over to cover the property’s weekly shortfall?

If you’re not sure about that last one, try the Can I Invest Test. Put the expected top-up aside each week for a few months and see how your budget handles it.

If you can do that comfortably you may be closer to investing than you think.

If you can’t, that’s useful too. It tells you what needs to change before you buy.