Most NZ rental properties ran at a cash flow loss in 2022–2025. The restoration of interest deductibility from 1 April 2026 changes the maths significantly. Here’s how to calculate rental cash flow properly.
Net cash flow = Gross rent − Vacancy − Property management − Rates + Insurance + Maintenance + Body corporate − Mortgage payments (P&I) ± Tax effect. Most NZ residential rentals run at negative cash flow of $200–$600/month even with 2026 interest deductibility restoration. Positive cash flow is possible in provincial NZ but rare in Auckland and Wellington at current prices.
The Cash Flow Formula
$$\text{Net cash flow} = \text{Gross rent} - \text{Vacancy} - \text{Expenses} - \text{Mortgage P&I} \pm \text{Tax refund/liability}$$
Breaking down each component:
Gross rent: Weekly rent × 52 (use actual or market rate)
Vacancy allowance: Typically 2–4% of gross rent ($200–$400/week rent → $200–$800/year vacancy)
Expenses:
- Property management: 7–10% of gross rent (most NZ investors use a property manager)
- Rates: $2,500–$5,000/year for a typical NZ house (varies by council)
- Insurance (landlord + building): $2,000–$5,000/year
- Maintenance/repairs: 1% of property value/year as a rough budget ($600,000 house → $6,000/year)
- Body corporate (apartments): $3,000–$15,000/year — highly variable, check the annual accounts
- Accounting (tax return): $500–$1,500/year
Mortgage payments: Principal + interest on the loan amount at prevailing investment rate (~7.0–7.5% for interest-only in 2026, higher for P&I)
Worked Example: Auckland Property 2026
Property details:
- Purchase price: $800,000
- Deposit (35%): $280,000
- Mortgage: $520,000 at 7.0% interest-only for 1 year
- Rent: $700/week ($36,400/year)
Annual Cash Flow Before Tax
| Item | Amount |
|---|---|
| Gross rent | $36,400 |
| Vacancy (3%) | −$1,092 |
| Property management (8.5%) | −$3,094 |
| Rates | −$3,500 |
| Insurance | −$2,500 |
| Maintenance (1% of value) | −$8,000 |
| Accounting | −$800 |
| Net operating income | $17,414 |
| Mortgage interest (7.0% × $520,000) | −$36,400 |
| Pre-tax cash flow | −$18,986 / year |
| Monthly cash flow | −$1,582 |
This is a −$1,582/month loss before any tax effect.
Tax Effect (Interest Deductibility from 1 April 2026)
From 1 April 2026, 100% of interest is deductible against rental income. The rental loss of $18,986 cannot offset salary (ring-fencing) — it carries forward to offset future rental income or gains on sale.
If rental income eventually exceeds expenses (e.g., rents rise, mortgage paid down), the accumulated loss offsets future taxable income.
Effective cash position: The $18,986 loss is real cash out of pocket. The tax deduction saves future tax — but you still fund the shortfall now.
Worked Example: Provincial NZ (Whanganui)
Property details:
- Purchase price: $380,000
- Deposit (35%): $133,000
- Mortgage: $247,000 at 7.0% interest-only
- Rent: $450/week ($23,400/year) — higher gross yield
Annual Cash Flow Before Tax
| Item | Amount |
|---|---|
| Gross rent | $23,400 |
| Vacancy (4%) | −$936 |
| Property management (9%) | −$2,106 |
| Rates | −$2,800 |
| Insurance | −$1,800 |
| Maintenance (1%) | −$3,800 |
| Accounting | −$700 |
| Net operating income | $11,258 |
| Mortgage interest (7.0% × $247,000) | −$17,290 |
| Pre-tax cash flow | −$6,032 / year |
| Monthly cash flow | −$503 |
Still cash flow negative — but significantly less than Auckland ($503/month vs $1,582/month). Provincial NZ yields are higher, but capital growth historically lower.
What Gross Yield Do You Need for Break-Even?
At 7.0% mortgage rate with 35% deposit (65% LVR) and typical expenses, rough break-even gross yield:
- Interest-only mortgage: ~6.5–7.0% gross yield needed for break-even
- P&I mortgage: ~8.0–9.0% gross yield needed for cash flow neutral
Auckland median house price ~$950,000 (2026). At $700/week rent: gross yield = $36,400 / $950,000 = 3.8% — far below break-even.
Wellington median ~$700,000. At $600/week rent: gross yield = $31,200 / $700,000 = 4.5% — still negative.
Positive cash flow properties in NZ generally require gross yields of 6.5%+ — found in Invercargill ($200,000 house at $300/week = 7.8%), Whanganui, Gisborne, Kawerau. These regions offer cash flow but less capital growth.
Gross Yield vs Net Yield vs Cash-on-Cash Return
Three ways to measure rental property returns:
Gross yield = Annual rent / Property value × 100
- Ignores all expenses. Use only for quick comparison.
Net yield = (Annual rent − expenses) / Property value × 100
- More accurate. Excludes mortgage.
- Net yield of 3.0–4.5% is typical in NZ cities.
Cash-on-cash return = Annual cash flow / Cash invested × 100
- Most practical for investors with mortgages.
- Most NZ city rentals: negative cash-on-cash return in 2026.
Improving Rental Cash Flow
Increase rent: Rent reviews, upgrading fixtures to justify higher rent, HMO (house in multiple occupation) for higher total income.
Reduce vacancy: Property manager, maintaining good tenant relationships, being responsive.
Reduce mortgage rate: Refinance if better rates available; pay down principal to reduce interest.
Interest-only period: IO mortgages have lower monthly payments, improving near-term cash flow — but you’re not reducing principal. Typical IO period: 1–5 years (then converts to P&I unless renewed).
Chattels depreciation: Claim depreciation on chattels (carpet, heat pump, oven) to create a tax deduction. See Depreciation on Rental Property NZ.
Frequently Asked Questions
Does a cash-flow-negative property still make sense? It can, if capital growth is strong. A $1,582/month shortfall over 5 years = $94,920 total top-up. If the property grows 20% from $800,000 = $160,000 capital gain. Net position: +$65,080 gain — plus you built equity through principal payments. Whether this beats alternatives depends on leverage, opportunity cost, and actual growth.
Can I use rental income to service the loan when applying for a mortgage? Banks typically count 75% of rental income in their serviceability assessment. Some banks haircut more conservatively. Your total debt-to-income ratio (DTI) must be under 7× from July 2024.
What about short-stay/Airbnb rentals? Airbnb income can be significantly higher than long-term rental, but: seasonal volatility, higher maintenance, GST obligations if income exceeds $60,000/year, and some councils restrict short-stay properties. Calculate Airbnb cash flow separately using actual platform projections for your area.