Quick Answer
Cash flow from a rental property is the money left after all expenses are paid from rental income. In NZ, most residential investment properties are negatively geared — meaning expenses exceed rental income — particularly in Auckland and Wellington where yields are 3.5–4.5%. Regional cities like Gisborne (7.5–8.5% gross) are more likely to generate positive cash flow. Calculate cash flow by subtracting mortgage repayments, rates, insurance, property management, and maintenance from weekly rent.
What Is Cash Flow?
Cash flow is the net money that flows in or out of your pocket each week (or year) from a rental property after every expense has been paid. It is the most practical measure of whether a property is working for you right now — as opposed to capital gains, which only matter when you sell.
The formula is straightforward:
If the result is positive, you have a positively geared property — it puts money in your pocket each year. If the result is negative, you are negatively geared — you are topping up the property from your other income to cover the shortfall.
In New Zealand's major cities, negative gearing is the norm, not the exception. High purchase prices relative to achievable rents mean that most leveraged investors are supplementing their property from their salary, particularly in Auckland and Wellington. They accept this in exchange for the expectation of long-term capital gains.
Calculating Gross vs Net Yield
Gross yield is the headline figure most listings and agents quote. It is simply annual rent divided by the purchase price, expressed as a percentage. It ignores every expense except the mortgage — which means it tells you very little about actual cash flow.
Net yield deducts all running costs (management fees, rates, insurance, maintenance, accounting) from rent before dividing by property value. It is the yield that actually matters for cash flow analysis. The gap between gross and net is typically 1.5–2.5 percentage points.
Net Yield = ((Annual Rent − Annual Expenses) ÷ Property Value) × 100
The table below shows typical gross and net yield ranges across key NZ markets based on MBIE tenancy bond data and market sales records.
A net yield above your mortgage interest rate (currently around 5.5–6.5% for investment loans) is required for genuine positive cash flow on a fully leveraged property. That threshold is seldom reached in Auckland or Wellington without a significant deposit reducing the mortgage balance.
Calculate Your Rental Yield →All the Expenses Investors Miss
When investors estimate cash flow, they often only subtract the mortgage. The real expense list is much longer. Every item below chips away at your net rental yield — and therefore your cash flow.
- Mortgage interest — the largest single expense for most investors. From 1 April 2025, 100% of mortgage interest on residential rental properties is deductible. On a $700,000 loan at 6.0%, that is $42,000/year in interest alone.
- Council rates — typically $2,500–$5,000/year depending on location and property value. Fully deductible.
- Building insurance — $1,200–$3,500/year for a typical house, more for apartments. Premiums have risen sharply since 2023 Canterbury reinsurance changes. Deductible.
- Landlord insurance — covers rent default, intentional damage, and loss of rent. Typically $400–$800/year. Deductible. Highly recommended given the Residential Tenancies Act limitations on recoveries from tenants.
- Property management fees — typically 7–10% of gross rent plus GST. On $500/week rent that is $1,820–$2,600/year. Also includes letting fees (typically 1–2 weeks rent) when a new tenancy starts. Deductible.
- Repairs & maintenance — budget 1–1.5% of property value annually (e.g. $6,000–$9,000 on a $600k property). Routine maintenance is immediately deductible. Healthy Homes compliance costs (heating, insulation, ventilation) can add a one-off $2,000–$10,000.
- Accounting and tax filing — $500–$1,500/year for a property accountant to file your rental income return. Essential for maximising deductions and managing depreciation. Deductible.
- Depreciation on chattels — carpets, appliances, and chattels can be depreciated separately from the building (buildings are not depreciable). An asset register and depreciation schedule from your accountant can meaningfully reduce your taxable rental income.
- Vacancy allowance — even well-managed properties have 2–4 weeks vacancy per year between tenancies. On $500/week rent that is $1,000–$2,000 of lost income. Build this into your projections.
Capital improvements — such as a new kitchen, bathroom extension, or deck — cannot be deducted in the year they are incurred. They must be capitalised and depreciated over time (or added to the cost base). Confusing a repair with an improvement is one of the most common errors in rental property accounting. Your accountant can help distinguish the two.
Positive vs Negative Gearing
Gearing simply means borrowing to invest. The relationship between your rental income and your total costs determines whether you are positively or negatively geared.
* Since April 2019 ring-fencing rules, rental losses can only offset other rental income, not salary or wages. Excess losses carry forward to future rental income years.
From 1 April 2025, mortgage interest is fully deductible again for NZ rental properties, reversing the phase-out introduced in 2021. This materially improves after-tax cash flow for all leveraged investors. If you were modelling cash flow under the old rules, recalculate — the difference can be several thousand dollars per year.
Which strategy is right for you depends on your income, tax rate, risk tolerance, time horizon, and whether you need the property to fund your lifestyle now or in the future. Many investors accept negative gearing in their accumulation phase and aim to be positively geared by the time they retire, either through rent growth or as loans are paid down.
Real NZ Cash Flow Examples
The following examples illustrate the cash flow difference between a high-yield regional property and a lower-yield main-centre property. Both assume a 35% deposit (the investor LVR limit), P&I mortgage at 6.0% over 30 years, and a fully managed property.
Example A — Gisborne (Positive Cash Flow)
Example B — Auckland (Negative Cash Flow)
The Auckland investor needs to contribute $346/week from their salary to keep the property. This is not unusual — but it must be sustainable from a servicing perspective and factored into your budget before you buy.
Debt Service Coverage Ratio (DSCR)
The Debt Service Coverage Ratio (DSCR) is the metric banks use to assess whether a rental property generates enough income to service its debt. It compares annual rental income to annual debt repayments (principal and interest).
A DSCR of 1.0 means rental income exactly covers debt repayments with nothing left over. Most NZ lenders require a DSCR of at least 1.0–1.2x when assessing an investment property loan, though some non-bank lenders apply different thresholds. A higher DSCR means a safer loan from the bank's perspective — and more cash flow cushion for you.
Notice that most major-city scenarios produce a DSCR well below 1.0x on gross income alone. Banks compensate by requiring sufficient personal income (salary) from the borrower to cover the shortfall — which is how negatively geared properties still get financed. The DSCR table above uses gross rental income; banks also apply a test rate (typically 1–2% above the actual rate) and use net rents after a vacancy and management deduction.
As your portfolio grows, lenders assess the aggregate DSCR across all properties. A mix of high-yield regional properties and lower-yield urban properties can balance the overall portfolio DSCR and improve your total borrowing capacity.
Improving Your Cash Flow
If your property is negatively geared and you want to reduce the shortfall — or tip into positive territory — there are several practical levers. Not every strategy suits every investor or property, but even modest improvements compound over time.
Run Your Own Numbers
Use the PropertyMetrics yield calculator to model gross yield, net yield, weekly cash flow, and LVR for any NZ property in under 60 seconds.