How Investment Property Holding Costs Work (And Why Property is Still a Good Deal)

Thinking about buying an investment property? It’s smart to look beyond the sale price. The real question is: what will it cost to hold that property over time? Understanding “holding costs” is key to knowing if an investment will pay off. This post breaks down a clear example using today’s market numbers. We’ll show you how to calculate your potential costs and profits, even with high interest rates.

Holding costs are the ongoing expenses you pay to keep your investment property. These costs happen every single year you own the place. They are a major part of your investment maths.

Breaking down the holding cost maths

Let’s start with the biggest cost for most investors: the loan interest.

The cost of your investment loan

Right now, a typical investment loan might have an interest rate around 6.5%. What does that mean for your wallet?

If you borrow $1,000,000, your yearly interest cost is 6.5% of that loan.

• That equals $65,000 per year in interest payments.

This is your starting point for understanding cash flow. It’s the money going out before you even think about any rent coming in.

Adding in rental income (the yield)

A property doesn’t just cost money; it should also make money from rent. We measure this as a “yield.”

• Gross yield: This is the total annual rent divided by the property’s value. In our example, a unit in Sydney might have a gross yield of 3.5%.
• Net yield: This is what’s left after you pay property expenses. These costs include council rates, water bills, repairs, and property management fees. After these costs, the net yield might be closer to 2.5%.

So, on our $1,000,000 property:

• A 2.5% net yield means $25,000 per year in net rental income.

Your annual cash shortfall

Now, let’s bring the costs and income together. This shows your true yearly cash position.

• Annual loan interest cost: $65,000
• Annual net rental income: $25,000
• Yearly out-of-pocket cost: $40,000

This $40,000 is your holding cost. It’s the amount you must pay each year to cover the gap between your loan costs and your rental income.

How your tax bracket helps

For many investors, the story doesn’t end with a $40,000 bill. The tax system can help.

If you are on the top marginal tax rate, you can claim your investment loan interest and expenses as tax deductions. This can cut your real cost in half.

• Yearly out-of-pocket cost: $40,000
• Estimated tax benefit (50%): -$20,000
• Final after-tax holding cost: $20,000 per year

This is your net holding cost. It’s the money that actually comes from your personal savings or salary each year to support the investment.

2026 Budget update. This example was made before the 2026 Budget. From 1 July 2027, losses on established residential property bought after 12 May 2026 can only be used against residential property income. They can no longer reduce the tax on your salary, and any excess is carried forward. New builds are the exception. For an established unit bought today, the after-tax holding cost could be closer to the full $40,000 a year. See what changed.

The long-term payoff: why property can still win

Paying $20,000 a year sounds like a lot. So why do people still invest in property? The answer is long-term capital growth.

The power of long-term growth

The goal of property investment is not to make a daily profit. It’s about the value of the property growing over many years.

Let’s say you buy a good quality property for $1,000,000. In a typical 10-year market cycle, it might grow in value by about 7% per year. This is an assumption, not a forecast.

Here is what that growth looks like over a decade:

Year	Estimated Yearly Cost	Estimated Property Value Growth
Year 1	-$20,000	Value increases by ~$70,000
Year 5	-$20,000 (that year)	Value has grown significantly
Year 10	-$20,000 (that year)	Value has doubled to ~$2,000,000

After 10 years, your $1,000,000 property could now be worth $2,000,000. This is a common “double in ten years” goal for many investors.

Calculating your total profit

Now let’s look at the total picture over a 10-year period.

1. Total holding costs: $20,000 per year x 10 years = $200,000. This is all the after-tax money you put in.
2. Total capital growth: $2,000,000 (new value) less $1,000,000 (original price) = $1,000,000 profit.
3. Net position: $1,000,000 (growth profit) less $200,000 (your costs) = $800,000 total gain.

Your $1,000,000 loan plus your $200,000 in holding costs has generated an $800,000 gain in this example. This is the power of leveraging a bank’s money and benefiting from long-term growth.

A note on capital gains tax

The $800,000 gain is a pre-tax profit. If you sell the property, you may owe Capital Gains Tax (CGT). However, many investors have a long-term plan. They may hold the property until retirement when their income and tax rate are lower. Some never sell, using it as a source of income instead. Your strategy will determine the final tax impact.

From 1 July 2027, the 50% CGT discount is replaced with indexation and a 30% minimum tax on real gains. Gains made before then keep the 50% discount.

Final thoughts: is property investment worth it?

This example shows a clear path. Yes, investment properties have real and ongoing costs. You need to be ready for the yearly cash shortfall. For a $1 million property, this could be $20,000 or more each year after tax benefits.

But the potential reward is also very real. Over a full market cycle, a good property can double in value. This growth often far outweighs the total costs you put in. You turn a series of smaller yearly payments into one very large gain.

This maths is why many experts are still pro-property. It’s not a get-rich-quick scheme. It’s a long-term wealth-building strategy. The key is to make it part of a solid overall financial plan. You must buy a quality asset and be prepared to hold it through market ups and downs.

Ready to see how an investment property fits your plan? Start by talking to your financial adviser. Run the numbers for your specific situation. Look at your cash flow and your long-term goals. With the right planning, the holding costs can be a stepping stone to a much larger financial future.

Weighing property against shares? Read 7 powerful ways to use debt to build wealth, or watch debt recycling explained.