Rental Yield

Rental yield is the rent a property generates each year divided by its value, expressed as a percentage. Gross yield flatters the purchase; net yield is the number that actually pays the mortgage.

PropertyLast reviewed 2026-10-02

What it is

Rental yield measures the income a property produces against its cost. The gross yield is the annual rent divided by the purchase price or current value. An $800,000 property renting at $700 a week collects $36,400 a year, a gross yield of 4.55 percent. The number is the headline the listing agent quotes, and it is the one that overstates the return. The property also costs money to hold, and the gross yield never counts it.

The net yield subtracts the holding costs from the rent before dividing by the value. The costs are property management fees, council rates, strata levies, insurance, maintenance and vacancy. On the same $800,000 property, roughly $13,500 of annual costs turn the 4.55 percent gross yield into roughly 2.9 percent net. The gap between the two numbers is where investment properties earn or lose their case. The yield quoted in the listing and the yield that lands in your account are different numbers entirely.

Key takeaways

Gross yield is annual rent divided by property value; net yield subtracts holding costs first.
Holding costs - management, rates, strata, insurance, vacancy - typically consume a third of the rent.
An $800,000 property at $700 a week is a 4.55 percent gross yield, roughly 2.9 percent net.
High yield and high growth rarely live in the same suburb; the trade-off is structural.
Compare properties on net yield, not the gross yield quoted in the listing.

How it works

The gross arithmetic is one line. Annual rent is the weekly rent multiplied by fifty-two: $700 a week on an $800,000 property is $36,400, and $36,400 divided by $800,000 is a 4.55 percent gross yield. The number ignores vacancy, which is why it is the listing agent's favourite: a property that sits empty for two weeks a year collects $34,800, not $36,400, before a single cost is counted.

The net arithmetic subtracts the costs that actually arrive. Property management at 7 percent of rent takes $2,550, council rates $1,800, strata levies $3,200, landlord insurance $1,400, maintenance $3,000 and two weeks of vacancy $1,400 - roughly $13,350 in total. Net rent is $23,050, and the net yield on the $800,000 value is 2.88 percent. The gap between 4.55 and 2.88 percent is roughly $13,000 a year of costs doing their work.

The yield-versus-growth trade-off closes the mechanism. A $500,000 regional property renting at $640 a week delivers a 6.7 percent gross yield; a $1 million inner-city apartment at $700 a week delivers 3.6 percent. The regional property pays the mortgage; the city property bets on capital growth. Neither is wrong, but the negative gearing entry covers what happens when the low-yield property's shortfall is the plan - and the ATO taxes the rent as income either way.

Why it matters

For an Australian reader, rental yield decides whether an investment property pays its own way or drains the household budget every month. MoneySmart's guidance on investing in property centres on the running costs - management fees, rates, maintenance, vacancy - and the gap between gross and net returns. The Australian Taxation Office taxes the rent as assessable income, which means the net yield is what survives tax. The rental property calculator runs the full income and cost picture on any property.

A colleague named Brent (yes, that Brent) bought a $750,000 inner-city apartment off the plan on a 4.2 percent gross yield. The strata levies alone ran $4,800 a year, the net yield landed near 2 percent, and the apartment sat vacant for a month between tenants. The shortfall was funded by his pay packet every fortnight. The highest-leverage thing most Australians can do is price the net yield before the offer - the management fee, the rates, the strata, the vacancy. Let the mortgage holding cost calculator decide whether the property pays for itself.

Real-world examples

$800,000 property at $700 a week: the gross yield

The property collects $36,400 a year - $700 multiplied by fifty-two. Divided by the $800,000 value, that is a 4.55 percent gross yield, the number the listing quotes. It ignores vacancy: two empty weeks drop the collected rent to $34,800 before a single cost is counted, and the gross yield with realistic vacancy is closer to 4.35 percent. The listing printed 4.55 either way, which is the point.

The same property after holding costs: the net yield

Property management at 7 percent takes $2,550, council rates $1,800, strata $3,200, insurance $1,400, maintenance $3,000 and vacancy $1,400 - roughly $13,350 a year. Net rent is $23,050 and the net yield is 2.88 percent. The listing said 4.55; the account receives 2.88, and the $13,000 gap is the holding costs doing their work. This is the number the mortgage either services or does not. The rental property calculator runs both sides of the trade.

Yield versus growth: $500,000 regional against $1 million city

The regional property rents at $640 a week: $33,280 a year on a $500,000 value, a 6.7 percent gross yield that likely covers its costs and services the debt. The city apartment rents at $700 a week: $36,400 on $1 million, a 3.6 percent yield that will not. The regional property pays its way today; the city property is a capital-growth bet financed by the household. The listing format is the same for both; the arithmetic is not.

Common mistakes

Mistake: Comparing properties on gross yield.

Why it bites you: The gross yield ignores the holding costs that consume roughly a third of the rent. Two properties with identical gross yields can differ by a full percentage point net.

Mistake: Forgetting vacancy in the arithmetic.

Why it bites you: Two weeks empty a year cuts $36,400 of collected rent to $34,800 before any cost. Vacancy is a cost the gross yield never counts and every landlord eventually does.

Mistake: Using the purchase price for one property and the current value for another.

Why it bites you: The yield only compares on the same basis. Mixing bases flatters the growth suburb by exactly the growth you are crediting it with.

Mistake: Ignoring strata levies on apartments.

Why it bites you: Strata on a $750,000 apartment can run $4,800 a year - Brent's levies were a full 0.6 percent of the value before management costs. Apartments with pools and lifts carry the biggest levies.

Ivy's take

I spent a weekend pricing the net yield on six properties I almost bought - management fees, council rates, strata, insurance, maintenance and a vacancy allowance - so you don't have to. The gross yields ranged from 4.2 to 6.7 percent. The net yields ranged from 2.0 to 4.9 percent. The gap was never less than a third of the rent, and on the apartment with the pool it was more than half.

The framing I use now is one line: the listing quotes the gross, the bank account receives the net, and the difference is the property's real running cost. Brent bought the apartment with the pool. The strata levies arrived quarterly, the vacancy arrived without warning, and the net yield landed where the arithmetic said it would - not where the listing promised. Price the net yield first and let the gross be marketing.

Related jargon, defined

Gross yield: Annual rent divided by property value, before costs.
Net yield: Yield after holding costs - the number the account actually receives.
Property management fee: Typically 5 to 8 percent of rent collected, deducted before the net yield.
Strata levies: Quarterly fees on apartments covering building maintenance and sinking funds.
Vacancy rate: The share of the year the property sits empty - a cost the gross yield ignores.
Positive gearing: Rent above total holding costs, so the property pays its own way.

Frequently asked questions

What is a good rental yield in Australia?+

A gross yield above 5 percent is generally considered strong, and above 6 percent is usually a sign of a lower-priced or regional market. The honest comparison is net yield after costs, which typically runs 2 to 4 percent.

How do I calculate net rental yield?+

Subtract the annual holding costs - management fees, rates, strata, insurance, maintenance and vacancy - from the annual rent, then divide by the property value. An $800,000 property renting for $700 a week with $13,350 of costs returns roughly 2.9 percent net.

Is rental yield the same as return on investment?+

No. Yield measures the income leg only; total return adds capital growth, which is untaxed until sale under the CGT discount. A low-yield property with strong growth can out-return a high-yield one after tax.

Why is my net yield so much lower than the gross?+

Holding costs consume roughly a third of the rent on a typical Australian investment property. Management, rates, strata, insurance, maintenance and vacancy together turned the 4.55 percent gross example into 2.88 percent net.

Do I pay tax on rental income?+

Yes. The ATO taxes net rent as assessable income at your marginal rate, less deductions for the holding costs. The 50 percent CGT discount applies to the capital gain on sale, not to the annual rent.

Disclaimer: This information is general in nature and does not constitute financial or legal advice. Always consult a qualified professional for your specific situation.

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