Investment property holding costs: the Crossover Test, and the year a property starts paying for itself

If you're picking your next property by its yield, you're about to pick it with the wrong number. Rental yields just hit a seven year high, 3.85 per cent, the best since 2019. But since June, only about an eighth of that rise is your rent. The rest came from values falling. On my own list, three suburbs saw zero rent growth for twelve months. Zero. I'll show you the Crossover Test. It tells you how long you'd fund a property, and whether you can, before you buy it. It lands at about eight minutes, then the move that shrinks your holding gap.

Here's an example: a seven hundred thousand dollar investment property in a good street costs you about twenty one thousand three hundred dollars a year to hold on current rates, out of your own pocket. Even with rents rising steadily, you fund that gap for about twelve and a half years. About a hundred and fifty eight thousand dollars, all up. Cash flow is not a strategy, it's a constraint. Can you carry that? I've bought twenty two properties with my own money. I still hold every one, so holding is the part I know. I'm a licensed buyer's agent, and our fee goes up with the purchase price.

So take this the right way: for a lot of you, the answer here is spend less. So what's inside that seven year high? A yield is a fraction. The rent sits on top. The value of the property sits underneath. Over the year, rents rose 5.5 per cent and values went nowhere, so that was mostly rent. Since June it's different. The yield went from 3.7 to 3.85 per cent while rents rose half a per cent. Values fell. The top barely moved, the bottom shrank, and the fraction improved anyway. Nobody sent you more money for that part. You just own a bigger share of something worth less.

It's the same as being told you now hold a larger slice of a company that shrank. And you might be thinking, fine, a better yield is a better yield, whatever caused it. Partly true. But if you use that number to pick which property to buy, you're letting a fall in somebody's capital value choose your asset for you. That is the mistake this whole video is about. And from 2027, that mistake gets harder to resist, because a tax rule changed. Before I show you how, two quick things, because this touches tax and money. I'm a licensed buyer's agent, not a financial or tax adviser.

Everything here is general information only, so please check anything that affects your money with your own adviser. Nothing here is a recommendation to buy or sell any particular property. I run an independent buyer's agency, with no commissions from developers or agents. The only person paying us is the person we're buying for. Two things changed in 2026. The cash rate is 4.60 per cent, after four rises. as we speak. And from the 2027-28 income year, if you buy an established residential property after Budget night, the twelfth of May, a loss on it no longer comes off your salary.

It can only come off later residential property income, or a future capital gain on residential property, and it carries forward. New builds are treated differently, and the definition of new isn't final yet. If you bought before Budget night, none of this reaches you. Negative gearing is not gone. The loss is not gone. It just cannot reach your wage any more. And your clock is running. Buying in the next six months? Find a property in March, learn in April you can't carry it, and you've lost months. Run this test tonight, not after an offer. One of the next two properties just got about eight thousand dollars a year more expensive. Watch.

Here's that number, beside a second property at the same price. An illustration, on published market rates. The first has a gross yield of 3.2 per cent. Better street, better land. About twenty two thousand four hundred a year in rent. The second has a yield of 5.6 per cent. Further out, bigger block. About thirty nine thousand two hundred. Same deposit on both, same loan. An eighty per cent loan at 6.55 per cent is about thirty six thousand seven hundred a year in interest. Then rates, insurance, management, maintenance, and the weeks it sits empty. Run it. The first costs you about twenty one thousand three hundred a year to hold.

The second costs you about five thousand five hundred. Now put the 2027 rule on the first one. Under the old rules, on a salary of around a hundred and seventy thousand, the tax refund brought its cost down to about thirteen thousand a year. Under the new rules, it's the full twenty one thousand three hundred. About eight thousand a year more out of your pocket, because the rule changed. This is where people get stuck. They're still using the old number to decide what they can afford, and they're short by about sixty thousand dollars in cash before that gap closes. And it's tempting to pick the second property. I understand why.

But there's a question worth asking before you pick, and it changes the answer. How long would you have to fund that gap? Because rent doesn't stay still. If rent grows, the gap closes. So the number that decides this isn't what the property costs you in year one. It's the year the gap reaches zero, and whether you can make it that far. I call it the Crossover Test. Four inputs, one number: the year the property starts paying for itself. One. What the property costs you to hold, after the 2027 change, not before it. Two. The rent, today. Three. What you're assuming rent grows at.

Nationally it has been 5.5 per cent over the year, and only half a per cent in the last three months. Be more pessimistic than the national number for your own suburb, and I'll show you why in a minute. Four. What you can carry out of your own income, every year, without changing how you live. If that's the one making you uncomfortable, that is the test working. Screenshot those four: that's the Crossover Test. Then pause the video and open the calculator on your phone. Take the rent, grow it by your rate, year by year, and count the years until it covers the cost. I'll wait.

And if you get a 12 year crossover on an established property, you might be wondering: what if I bought new instead? The tax treatment differs, so the crossover changes too. That comparison is a seven row table I run live in the session. If you're choosing between new and established, see it before you sign. On the first property, at 5.5 per cent rent growth, the gap closes in about twelve and a half years. Add up every year until then and that's the hundred and fifty eight thousand I opened with. On the second, about two and a half years. That is a real answer, and it does not favour me.

On these numbers the yield property is dramatically easier to hold. If you're sitting there thinking twelve years is a long time to fund anything, you're right. Now I'm going to show you the strongest argument against the numbers I just gave you. And if you're thinking, wait, is he arguing against himself? Yes. I'd rather you saw it now than in year four. Last year I named seven Melbourne suburbs under $750,000. When I graded them in October, the rent had been flat for twelve months in three of them. Not slow. Flat. The full grading is in my scorecard video.

Buy into one of those assuming 5.5 per cent rent growth, and your crossover year just became never. The property didn't fail. The assumption did. I've had the other side of this. In 2015 I bought an off the plan unit in Campbelltown, in Sydney's southwest, at a 5 per cent yield, assuming 5 per cent growth. The reasoning was the hospital and its jobs. For about six years, that's what happened. Then the growth stalled. I was right about the demand. What I didn't think hard enough about was the supply. The same thing that made it obvious to me made it obvious to developers, and a lot more apartments got delivered into it.

It still rents well and costs me almost nothing to hold. Easy to hold is not the same as growing. So whichever number you're leaning on, rent or growth, run it at the one you'd be uncomfortable with, and run rent at your suburb's number, not the national one. And if you've already bought into something like that, I know how that lands. Watch your area's rents. If you screenshot one thing from this video, make it this. Cash flow is not a strategy. It is a constraint. It does not build the wealth. It buys you the years in which something else does. Think about a diver.

How long you can stay down decides what you can reach. It has nothing to do with how fast you swim. Holding power is the air in the tank, and the property is what you went down there for. And if you run out of air at thirty metres, you don't get to choose how you come up. You come up fast, and you sell into whatever market is waiting for you. That isn't a strategy. It's the market deciding for you. If that changed how you see this, the session goes further, link below. Here's the move that shrinks your holding gap: buy the better asset, smaller.

It drops your holding cost by about six thousand dollars a year. Take that same first property at five hundred and fifty thousand instead of seven hundred, put the same deposit in, and the annual cost drops from about twenty one thousand three hundred to about fifteen thousand three hundred. Same street. Same kind of land. Less of it. Screenshot this one. It's one of three answers: fund the better asset for as long as it takes, buy the yield property with your eyes open, or this. A smaller house in a good street usually beats a bigger house in a bad street, because the land is what appreciates.

Our fee is a flat fee, tiered by purchase price bracket. Both of these sit in the same bracket, so this answer doesn't change what we earn. I would still rather you bought that than the cheaper thing you can service on paper. Here's what I wouldn't do with my own money, at these numbers. I wouldn't buy new just to keep the deduction. The tax treatment is one line in that decision, not the decision. And I wouldn't treat a loan approval as the answer. A bank tests today's repayments, with a buffer. It doesn't ask how many years you'll fund the gap. That's your question, not the bank's.

What I would do is work out the crossover year on every property before I made an offer. Not because the number is magic, but because if you can't produce it, you haven't decided anything. You've just liked something. This is for you if you own one or two and you're working out whether you can carry the next. Or if you've been told rents will cover it and nobody showed you the year that happens. Not you, if you're flipping in twelve to twenty four months. So run the Crossover Test and you get a year. If it sits inside what you can carry, you have your answer.

If not, what you have is a budget to change, not a strategy to change. Because cash flow is not a strategy. It is a constraint. Our free seventy five minute session, Buy, Wait or Sell: that's where your own numbers go in. You watch two portfolios run live, you see the seven rows of new against established, and you work out the holding question on your own property yourself, so you leave knowing your own holding gap before you open a single listing. Everyone who stays to the end gets a print copy of my book, The Property Wealth Blueprint, posted to them.

If you want to go further after that, there's a free fifteen minute readiness check, and we often tell people not yet. The link is in the description. And coming up on this channel: the proposed tax on trusts, who it would really hit, and who it wouldn't. Until then, find your crossover year.

General information only. We're licensed buyer's agents, not financial or tax advisers, so please check anything that affects your money with your own adviser.