A cash-flow forecast is only as good as its weakest assumption, and for most investors that's the expense line — a single number inflated by general CPI each year, applied uniformly across everything from council rates to building insurance. In practice, the categories inside "expenses" move at noticeably different speeds.
The problem with one flat CPI figure
General CPI measures a broad household consumption basket — it isn't designed to track how any single property expense category behaves. Insurance premiums, for example, have in many markets risen well above general inflation for years, driven by reinsurance costs and climate risk repricing, while council rates typically move in smaller, more predictable annual steps set by local government budgets. Applying one blended CPI figure to both understates the category that's actually rising fastest and can leave a forecast quietly wrong within a few years.
Expenses grow at different rates
The main categories worth forecasting separately:
Council rates
Typically set annually by local government budgets and tied to land valuations — usually moves in small, predictable steps, but can jump after a valuation revaluation cycle.
Insurance
Often the fastest-moving category, driven by claims history, rebuilding costs and reinsurance pricing rather than general CPI — worth forecasting with its own, typically higher, growth rate.
Strata / management fees
Body corporate fees escalate as buildings age and shared facilities need upkeep; management fees usually track as a fixed percentage of rent, so they grow automatically with the rent forecast.
Maintenance
Trends upward as a property ages, and can spike irregularly rather than growing smoothly — better modelled with an aging property age-based allowance than a flat annual increase.
Building a per-category expense forecast
Rather than one line labelled "expenses" inflated at a single rate, build the forecast as separate line items, each with its own growth assumption informed by its actual recent history where available:
- Start from actuals — use the property's last 1–2 years of actual spend per category as the base, not an industry average.
- Assign a growth rate per category — a higher rate for insurance and strata fees, a moderate rate for rates and maintenance, rather than one blended figure across all of them.
- Revisit annually — actual renewal notices (insurance, strata levies, rates notices) are the best signal to recalibrate each category's growth assumption as they arrive.
This is the same logic behind forecasting strata fees separately for apartments — any expense category with its own underlying cost driver deserves its own line, not a share of a blended average.
Feeding it into a cash-flow projection
Once each category has its own growth assumption, sum them for a given year to get a realistic total expense figure, then run that against your rent forecast and loan repayments to see the net cash position over time — a materially different, and usually less favourable, trajectory than a single flat-CPI expense line would show, especially over a 5–10 year horizon.
Run the resulting per-category totals through the cash flow calculator to see how the compounding difference between categories affects your net position over a multi-year horizon.
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