For years, Australian property investors have relied on a familiar strategy: purchase an investment property, collect rental income and wait for capital growth to build long-term wealth.

But what happens when property prices start falling, interest rates remain elevated and rental growth begins to slow?

In this episode of The CEO Breakdown, John Saade, CEO of Latitude Accountants, examines the growing financial pressure facing Australian property investors and questions whether some investment properties still make financial sense under current market conditions.

With rental yields struggling to compete against borrowing costs and household affordability reaching its limits, investors may need to reconsider the numbers behind their investment decisions.

Australia’s Rental Market Is Showing Signs of Slowing

Australia’s rental market has experienced significant growth in recent years, largely driven by limited housing availability and strong demand.

However, the latest rental figures discussed in The CEO Breakdown suggest that growth is losing momentum.

According to the September 2026 figures cited in the episode:

• National rental growth slowed to 0.5% over the quarter.
• Annual rental growth eased to approximately 5.5%.
• The national median dwelling rent reached $713 per week.
• Rental vacancy rates increased from 1.7% in March to 2.1% in September.
• Sydney’s median weekly rent reached approximately $843, with rents declining 0.4% over the quarter.

These figures suggest that rental affordability is becoming an increasingly important constraint on further rent increases.

Although national rents remain higher than a year earlier, the pace of growth has slowed.

For investors relying on continued rental increases to offset higher mortgage repayments, this presents a potential financial challenge.

Why Rising Interest Rates Are Hurting Property Investors

Interest rates directly influence the cost of financing an investment property.

When mortgage rates increase, investors with variable-rate loans generally face higher repayments, reducing the income remaining after property expenses.

Consider an investor carrying a $700,000 interest-only investment loan.

These hypothetical figures exclude principal repayments, lender fees and other ownership expenses.

At 7%, the annual interest expense alone reaches $49,000.

Unless rental income increases sufficiently, the investor may need to contribute additional personal funds to maintain the property.

This highlights why an investment that appeared affordable under lower interest rates may become considerably more expensive to hold.

Are Australian Rental Yields Still Attractive?

Rental yield measures the rental income generated by a property relative to its market value.

It provides a useful starting point when comparing investment opportunities, although it does not represent the investor’s final profit.

John Saade highlights an important comparison in The CEO Breakdown: Australia’s reported average gross rental yield of approximately 3.85% versus the returns potentially available through certain savings products.

Gross Rental Yield vs Net Rental Yield

Gross rental yield measures annual rental income before deducting expenses.

Net rental yield accounts for ongoing ownership costs, such as:

• Property management fees.
• Council rates and insurance.
• Repairs and maintenance.
• Strata expenses, where applicable.
• Other recurring property costs.

Mortgage interest and taxation must also be considered when assessing an investor’s overall cash flow and financial return.

For example, a property worth $1 million generating $38,500 in annual rent has a gross rental yield of 3.85%.

However, that figure does not account for the expenses required to maintain the investment.

If borrowing costs and other expenses exceed rental income, the property may generate negative cash flow.

When Does an Investment Property Become Unprofitable?

An investment property becomes cash-flow negative when the money required to maintain it exceeds the income it generates.

This does not automatically mean the investment will produce an overall financial loss over its lifetime. Capital growth, loan repayments, selling costs and taxation can all influence the eventual outcome.

Nevertheless, persistent negative cash flow can place considerable pressure on household finances.

Example: Investment Property Cash Flow

Consider a hypothetical property generating $750 in weekly rent.

This simplified example excludes depreciation, taxation, principal repayments, vacancies and transaction costs.

The investor would need to contribute approximately $11,000 annually to cover the shortfall.

If rental income weakens or additional expenses arise, that financial burden could increase.

Falling Property Prices Create Another Risk for Investors

Rental income is only one part of property investment.

Capital growth has historically played an important role in Australia’s investment property market.

However, Sydney’s recent downturn demonstrates that property values do not always move upwards.

In the episode, John discusses SQM Research founder Louis Christopher’s assessment that a 20% peak-to-trough Sydney property correction is possible.

This remains a forecast rather than a guaranteed outcome.

For investors who purchased recently with substantial borrowing, a significant decline could reduce equity and complicate refinancing.

It may also limit their ability to sell without incurring a financial loss.

What Are the Tax Implications of a Loss-Making Investment Property?

Property investors should understand the distinction between negative cash flow and a tax-deductible rental loss.

Under Australian taxation rules, certain expenses associated with earning assessable rental income may be deductible, subject to eligibility requirements.

These can include:

• Interest on eligible investment property borrowings.
• Property management expenses.
• Council rates and insurance.
• Eligible repairs and maintenance.
• Certain borrowing expenses.
• Applicable depreciation and capital works deductions.

However, not every property expense is immediately deductible, and principal loan repayments are generally not deductible.

Negative gearing may allow an eligible rental loss to be offset against other assessable income, but the resulting tax benefit does not eliminate the underlying financial loss.

At Latitude Accountants, we help property investors understand their rental income, deductible expenses and taxation obligations so they can make informed financial decisions.

How Can Property Investors Prepare for Further Market Pressure?

Rather than relying exclusively on future capital growth, investors should regularly assess whether their properties remain financially sustainable.

Practical considerations include reviewing rental income, forecasting mortgage repayments, maintaining emergency cash reserves and understanding potential capital gains tax consequences before selling.

Investors should also consider how extended vacancies or unexpected maintenance expenses could affect their finances.

Accurate financial records and proactive tax planning can provide a clearer understanding of an investment property’s performance.

Frequently Asked Questions About Australian Investment Property Profitability

Are investment properties becoming less profitable in Australia?

Some investors are experiencing reduced cash flow due to higher borrowing costs, slower rental growth and ongoing ownership expenses. Profitability depends on the individual property’s income, financing arrangements and overall costs.

What is a good rental yield in Australia?

There is no universal benchmark. Investors should consider gross and net rental yields alongside borrowing costs, property expenses, location, vacancy risks and long-term investment objectives.

Can I claim investment property losses on my tax return?

Eligible rental losses may be offset against other assessable income under Australia’s negative gearing rules. However, deductions depend on individual circumstances and applicable ATO requirements.

Should I sell an investment property if rental income no longer covers expenses?

Not necessarily. Selling decisions should account for cash flow, outstanding debt, potential capital gains tax, selling costs and long-term financial objectives. Seek appropriate professional advice before making a decision.

Does falling rent automatically mean property prices will fall?

No. Rental income is one factor influencing property valuations. Interest rates, buyer demand, housing supply, employment and broader economic conditions also affect property prices.

Get Professional Property Investment Accounting Advice With Latitude Accountants

With rising borrowing costs and changing rental market conditions, understanding your investment property’s financial performance is more important than ever.

Latitude Accountants provides proactive accounting, taxation and business advisory services to help Australian property investors understand their numbers and meet their tax obligations.

Whether you need assistance with rental income reporting, investment property deductions or tax planning, our experienced team is here to help.

Accounting Done Right. The Latitude Way.

Contact Latitude Accountants to arrange a consultation.

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton | Adelaide
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article provides general information only and does not constitute financial, tax, accounting, legal, property or investment advice. Market figures reflect the reporting period discussed and may change. Financial examples are hypothetical and simplified. Tax deductions depend on individual eligibility and applicable legislation. Seek advice from an appropriately qualified professional before making investment or financial decisions.