Rental yield is the annual return you earn from a property as a percentage of its value. It's one of the key metrics for comparing investment properties — but the raw number can be misleading if you're not calculating it the right way.
Here's exactly how to calculate gross and net rental yield, and what the numbers mean for your investment decision.
Gross Rental Yield
This is the simple version — annual rent divided by property value, expressed as a percentage.
Formula: (Annual Rent ÷ Property Value) × 100
Example
| Item | Amount |
|---|---|
| Weekly rent | $650 |
| Annual rent | $33,800 |
| Property value | $750,000 |
| Gross yield | 4.5% |
Gross yield is useful for quick comparisons between properties — but it doesn't account for costs.
Net Rental Yield
Net yield deducts your property expenses from the rental income before calculating the return. It's a more accurate picture of what you actually keep.
Formula: ((Annual Rent − Annual Expenses) ÷ Property Value) × 100
Common Expenses to Deduct
- Property management fees (typically 7–10% of rent)
- Council rates
- Water rates
- Insurance (landlord and building)
- Maintenance and repairs (budget 0.5–1% of value per year)
- Strata fees (if applicable)
- Accounting fees
- Periods of vacancy (allow 2–4 weeks per year)
What's a Good Yield?
What counts as "good" varies by market and strategy:
- Sydney/Melbourne: Gross yields of 3–4% are common due to high prices. Net yields are often 1.5–2.5%.
- Regional Australia: Gross yields of 5–8% are achievable, with higher net yields — but typically lower capital growth.
- General benchmark: A net yield above 3% generally covers costs comfortably. Below 2% means negative cash flow is likely.
Want to assess a specific property's yield potential?
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Yield vs Capital Growth: Which Matters More?
This depends on your strategy:
- Cash flow investors prioritise yield — they want the property to pay for itself now
- Capital growth investors accept lower yield in exchange for long-term value growth (typical in Sydney inner suburbs)
- Balanced strategy: aim for properties where yield covers most costs while still being in a capital growth corridor
How to Calculate Cash-on-Cash Return
For a more complete picture, calculate your cash-on-cash return — the return on your actual cash investment (deposit + costs), not the full property value.
Formula: Annual Cash Flow ÷ Total Cash Invested × 100
If you put in $150,000 (deposit + stamp duty + costs) and earn $8,000 net per year, your cash-on-cash return is 5.3% — which may be better than it looks on a gross yield basis.
Yield and Borrowing Power
Lenders use rental yield to assess how much of the loan is covered by rental income. Higher yield = better serviceability = more borrowing capacity for your next purchase.
This is why positively geared properties (where rent exceeds all costs including mortgage) are valuable for portfolio building — they add income rather than subtract it.
Want to model a specific investment?
We can run the numbers on yield, cash flow, and borrowing capacity for any property you're considering.