Are you thinking of dipping your toes in property investment? Before you get swept up in conversations about the best suburbs or the most appealing interiors, it pays to pause and crunch some numbers. Successful investors know to take the emotion out of the equation. It’s all about strategy, cash flow, and long-term gains.
Jaime Pratt, Head of PM at VPM, says that one of the first things any savvy investor assesses is rental yield. “This will give you a snapshot of how much income a property could bring in versus how much it’ll cost to keep.”
What is rental yield?
Rental yield is essentially your return on investment, your key performance indicator for your investment properties. It is calculated based on how much rental income a property generates each year and is presented as a percentage of its value, both before and after expenses are factored in.
Jaime advises that there are two types of rental yield to be aware of:
Gross yield: rental income without expenses deducted
Net yield: rental income after subtracting running costs
“While gross yield gives a quick overview, net yield is where you’ll see the true earning potential of the property,” she says.
How to calculate rental yield
Gross rental yield
To calculate your gross rental yield, take the annual rental income, divide it by the property’s purchase price, then multiply it by 100 to get the percentage.
Example:
Annual rent = $50,000
Property value = $900,000
Gross yield = ($50,000 / $900,000) × 100 = 5.56%
Net rental yield
To calculate your net rental yield, subtract the property’s yearly expenses from the annual rental income, then divide that by the purchase price and multiply by 100 to get the percentage.
Example:
Annual rent = $50,000
Annual expenses = $10,000
Property value = $900,000
Net yield = (($50,000 – $10,000) / $900,000) × 100 = 4.44%
“The net yield gives you a much clearer view of what the property is really earning, so you can compare and make well-educated decisions.”
If you’re investing to build wealth, net yield is your best friend. If capital growth is your strategy, then you’ll want to balance both your yield and appreciation potential.
What is a good rental yield?
In today’s Australian market, a healthy rental yield typically sits between 4–6%, although this is determined by location, property type, and current market conditions.
“Regional properties often offer higher yields but may have slower capital growth,” Jaime advises. “But metro areas might deliver stronger long-term gains with slightly lower yields. Growth corridors with new infrastructure, transport upgrades or lifestyle developments can be ideal sweet spots.”
Regular expenses to include
To gain an accurate read on your net rental yield, you need to account for ongoing property costs, such as:
Council and water rates
Property management fees
Insurance (landlord, building and contents)
Maintenance and repairs
Depreciation
Strata fees (including body corporate and any special levies)
With an influx of investors now searching for units and townhouses in strata-managed complexes, strata levies are the most important factor to consider, according to Jaime. “These fees can vary widely depending on the size of the complex, the amenities offered, and whether there are upcoming planned works or improvements”.
If you have your eye on a specific strata property, Jaime recommends asking for a copy of the latest body corporate reports and sinking fund balance because unexpected special levies can chip into your returns.
Invest with confidence. Run your numbers and be aware of any potential hidden strata costs. For help planning before purchasing your first investment property, contact our qualified team, who can walk you through everything on your checklist.
* Please note: This content is for informational purposes only and does not constitute financial advice.
