5 Metrics Every Australian Property Investor Should Track

Buying an investment property is the easy part. Knowing whether it is actually working for you is where most investors come unstuck. The good news is that you only need to watch a handful of numbers closely. Track these five from the day you buy, and you will always know where you stand.

1. Rental yield, gross and net

Rental yield tells you how much income a property produces relative to what it costs. It is the quickest way to compare one property against another.

Gross yield is the headline figure: annual rent divided by the property value, times 100.

• A property worth $650,000 rented at $560 per week earns $29,120 a year.
• Gross yield is ($29,120 / $650,000) x 100 = 4.5%.

Net yield is the honest figure, because it takes your holding costs out first. Subtract council rates, water rates, insurance, strata or body corporate fees, property management, and a maintenance allowance before you divide.

Net yield is almost always lower than gross, and it is the number that tells you what the property really returns. Work out both in seconds with the rental yield calculator.

2. Cash flow and your gearing position

Cash flow is what lands in or leaves your bank account each week once every cost, including your loan interest, is paid.

In Australia this is tied to your gearing position:

• Negatively geared means the property costs more to hold than it earns, so you top it up from your own pocket. The shortfall is generally deductible against your other income, which softens the cost at tax time.
• Positively geared means the rent covers everything with money left over, which is taxable income.

The figure that matters most is your after-tax cash flow, because the tax treatment can turn a property that looks expensive on paper into one that is very manageable in real life. The negative gearing calculator shows your true out-of-pocket cost once the tax position is taken into account.

A property can be negatively geared on cash flow and still be a strong investment if it is growing in value. Cash flow and capital growth are two different scoreboards, and you need to watch both.

3. Capital growth

For most Australian investors, capital growth is the main driver of long-term wealth. It is the increase in the property's value over time, and it compounds.

A property growing at 5% a year roughly doubles in value over 15 years. That growth is what builds the equity you use to keep investing, so it is worth tracking the suburb's median price movements and getting a realistic valuation each year rather than guessing.

Capital growth is also where capital gains tax eventually comes in. When you sell, CGT applies to the gain, with a 50% discount if you have held the property for more than 12 months. It pays to understand that liability long before you sell, so estimate it early with the capital gains tax calculator.

4. Equity and your loan-to-value ratio

Equity is the share of the property you actually own: its current value minus what you still owe.

Your loan-to-value ratio (LVR) is the other side of the same coin, the loan as a percentage of the value. Lenders will usually let you access equity up to around 80% of the property's value, and that usable equity is what funds the deposit on your next purchase.

• A property now worth $750,000 with a $480,000 loan has $270,000 in equity.
• Usable equity is roughly (80% x $750,000) minus $480,000 = $120,000.

That is the number that decides whether you can buy again, so check it with the equity calculator. When you do buy the next one, remember to budget for stamp duty, which varies by state.

5. Depreciation, the deduction many investors miss

Depreciation is the wear and tear on a building and its fittings, and the Australian Tax Office lets you claim it as a deduction even though it is not money leaving your pocket each year.

There are two parts: capital works on the building itself, and plant and equipment such as ovens, carpet and air conditioning. One Australian catch is worth knowing. Since the 2017 rule changes, depreciation on existing plant and equipment is generally only claimable on new or substantially renovated properties, so if you buy an established home you can usually still claim capital works plus any new assets you install yourself. A quantity surveyor can prepare a depreciation schedule that sets out exactly what applies to your property. For many investors this is one of the largest deductions they have, and it flows straight through to better after-tax cash flow. Get a feel for the numbers with the depreciation calculator.

Bringing the five together

These metrics do not live in isolation. Strong capital growth builds equity, equity funds your next deposit, yield and cash flow keep each property serviceable, and depreciation quietly improves your return at tax time.

The challenge is keeping an eye on all five, across every property, as your portfolio grows. Right now you can run each calculation for free with our property calculators. A portfolio dashboard that tracks all of these numbers together is launching soon, so if that sounds useful you can join the waitlist for early access.

Watch these five numbers consistently and you move from hoping a property is doing well to knowing exactly how it is performing.