Investing in a House and Land Package: A Two-Year Cash Flow & Tax Forecast

Are you considering a new house and land package investment? This guide offers a detailed two-year forecast of cash flow and tax impacts based on a $720,000 investment, a 12‐month build period, and a rental income of $610 per week.

1. Key Assumptions

Land Registration: May 2025
Construction Duration: 12 months (completion by May 2026)
Start of Rental Income: June 2026
Purchase Price: $720,000 (comprising $324,000 for land and $396,000 for construction)
Loan Details: 80% LVR totaling $576,000 (interest-only)
Interest Rate: 6.01%
Depreciation (Year 1):
- Capital Works: $396,000 × 2.5% = $9,900
- Plant & Equipment: Approximately $6,000
- Total Depreciation: $15,900
Expected Rent: $610 per week (equating to about $31,720 per year)
Other Annual Costs: Council rates, insurance, management fees, etc., totaling $7,802

2. Year 1: The Construction Phase

During the build period, no rental income is received. Based on drawdowns, an estimated average loan balance of $288,000 at 6.01% interest results in an interest cost of approximately $17,293. Other expenses remain minimal until the construction is complete.

3. Year 2: The First Full Rental Year

Income and Expenses Overview

Item	Amount
Rental Income	$31,720
Loan Interest	$34,176
Other Expenses	$7,802
Total Costs	$41,978

The pre-tax cash flow is calculated as $31,720 (income) minus $41,978 (expenses) which results in a negative cash flow of $10,258.

Depreciation and Tax Impact

With total depreciation of $15,900, the taxable rental loss becomes:
–$10,258 + $15,900 = –$26,158.
Assuming a tax rate of 34.5%, the tax saving is approximately $9,032, reducing the net holding cost to about $1,226 per year (roughly $24 per week).

4. Summary

Metric	Value
Annual Rent	$31,720
Total Annual Expenses	$41,978
Depreciation	$15,900
Taxable Rental Loss	–$26,158
Estimated Tax Refund	$9,032
Net Holding Cost (After Tax)	$1,226 per year

5. Key Takeaways

Year 1: Anticipate interest-only payments of approximately $17,293 with no rental income until the property is ready.
Year 2: Depreciation significantly reduces overall holding costs, lowering them to just about $24 per week.
Strategic Considerations:
- Engage a professional to prepare a depreciation schedule once construction is complete.
- Verify rental projections with a local property manager.
- Keep track of the construction timeline for more precise budgeting.

Need personalized advice or assistance with modeling your next property purchase?
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