The 7 Numbers Every Property Investor Should Calculate Before Buying

Most properties that look like a good deal on the surface are eliminated quickly when you run the numbers. The trouble is, retail investors usually run one or two numbers (gross yield, maybe weekly cash flow), declare the deal acceptable, and sign the contract. Then a year or three in they realise the deal had problems that the property investment metrics they didn't bother computing would have flagged on day one.

Here are the seven you should always work through — none of them takes more than a calculator and a couple of minutes each, and together they tell you almost everything that matters about a residential investment.

1. Net rental yield

Gross yield is fine for screening. Net yield is the honest comparison number. It strips out the ongoing costs of holding the property — council, water, insurance, management, repairs, body corp, land tax.

Net Yield (%) = (Annual Rent − Annual Operating Expenses) ÷ Purchase Price × 100

In Australian capital cities in 2026, anything below 2.5% net is heavily growth-dependent. Anything above 5% net deserves a second look — is it really that good, or is something wrong with the tenant pool / location / building?

2. Annual and monthly cash flow

Cash flow is the dollar version of how much it costs (or pays) to hold the property each month.

Annual Cash Flow = Rent − Expenses − Annual Loan Repayments
Monthly = Annual ÷ 12

Negative cash flow isn't fatal — most capital-city deals are negative early. But you need to know exactly how negative. A $400/month bleed is manageable; a $1,400/month bleed across an income drop or vacancy is house-of-cards territory.

3. Cash-on-cash return

ROI on the cash you actually put in (deposit + stamp duty + costs), excluding loan principal effects.

Cash-on-Cash = Annual Cash Flow ÷ (Deposit + Purchase Costs) × 100

Useful for comparing across different leverage levels. A property at 90% LVR and a property at 60% LVR can have wildly different cash-on-cash returns even with the same yield.

4. True ROI including principal paid

Plain cash flow understates returns because part of every loan repayment is principal — you're paying yourself, not the bank. Real ROI captures that.

ROI = (Annual Cash Flow + Annual Principal Paid) ÷ (Deposit + Costs) × 100

On a freshly drawn loan most of the repayment is interest, so the principal-paid bonus is small in year one. By year 10, principal is a meaningful chunk of the repayment, and ROI starts to look very different from year-one cash flow.

5. Debt Coverage Ratio (DCR)

Bank-speak for whether the rent covers the loan. Banks want above 1.25 for investment lending. Below 1.0 means the property doesn't service its own loan from rent alone — every dollar of shortfall has to come from your salary.

DCR = Net Operating Income ÷ Annual Debt Service

6. Internal Rate of Return (IRR)

The compound annual return the deal is projected to deliver across your full holding period, accounting for every cash flow including the eventual sale.

A property with strong year-one cash flow but poor growth might IRR at 5%. A property with negative year-one cash flow in a high-growth area might IRR at 11%. IRR is the single number that captures the whole deal — yield, growth, leverage and exit — and it's what professional investors actually compare.

7. Stress-test result — the buffer number

Pick the deal-killer scenario for your situation and run it explicitly. Most commonly:

• Interest rate +1.5% — can you still service the loan from rent + salary?
• Vacancy 8 weeks — do you have the cash reserves to cover three months of full repayments and expenses?
• Rent reduction of 10% in a market downturn — does cash flow stay survivable?

A deal that breaks under the realistic stress scenario isn't a deal. A deal that survives all three is one you can actually buy and sleep at night.

Putting the seven together

Run the seven numbers on every property before you make an offer. Most will fail at least one of them. The ones that pass all seven are the small minority worth flying out to inspect, negotiating hard on, and actually buying.

Frequently asked questions