How to Calculate Rental Yield and What It Really Tells Property Investors
- Feb 11
- 3 min read
What Is Rental Yield?
Rental yield measures the annual rental income of a property as a percentage of its purchase price or current market value.
In Australia, rental yield is commonly used to compare:
Capital city properties versus regional areas
Houses versus units
Established homes versus new builds
It provides a quick indication of income performance, but it does not reflect the full financial outcome of owning the property.
How to Calculate Rental Yield
Gross Rental Yield Formula
Gross Rental Yield (%) = (Annual Rental Income ÷ Property Value) × 100
Australian Example:
Weekly rent: $650
Annual rent: $650 × 52 = $33,800
Purchase price: $720,000
Gross rental yield: $33,800 ÷ $720,000 × 100 = 4.7%
This is the figure most online rental yield calculators display.
Gross Yield vs Net Yield
Gross Rental Yield
Does not include property expenses
Useful for high-level comparisons
Can overstate real-world returns
Net Rental Yield
Net yield reflects what Australian investors actually keep after costs, including:
Property management fees
Council rates and water charges
Landlord insurance
Repairs and maintenance
Vacancy periods
Net Rental Yield Formula: (Net Annual Rental Income ÷ Property Value) × 100
Net yield provides a clearer picture of true cash flow, especially in higher-cost metro areas.
What Is a “Good” Rental Yield in Australia?
A good rental yield depends on location and investment strategy:
2–3% – Common in blue-chip capital city suburbs focused on capital growth
4–5% – Balanced yield and growth (popular with long-term investors)
6%+ – High-yield properties, often found in regional areas or specialised markets
Higher yield is not always better. Properties with strong growth potential can outperform higher-yield assets over time when capital appreciation and tax benefits are considered.
Rental Yield vs Return on Investment (ROI)
This is a common misunderstanding among Australian property investors.
Rental Yield
Measures rental income only
Excludes tax deductions and capital growth
Best used as an initial screening tool
Return on Investment (ROI)
ROI considers the total performance of the investment, including:
Rental income
Holding costs
Tax deductions such as depreciation
Capital growth over time
Many Australian investors benefit significantly from depreciation deductions, particularly on newer properties or renovated assets, which rental yield alone does not capture.
Common Rental Yield Mistakes to Avoid
Do:
Compare net yields rather than gross yields
Factor in realistic vacancy periods
Consider depreciation and tax outcomes
Don’t:
Rely solely on rental yield calculators
Ignore rising holding costs
Assume higher yield guarantees better returns
From experience, successful Australian investors assess rental yield alongside long-term strategy, not in isolation.
Final Thought
Rental yield is an important metric, but it is only one part of a successful property investment strategy. Understanding how rental income, expenses, tax benefits, and growth potential work together helps investors make more confident and profitable decisions.
If you are considering purchasing an investment property or reviewing your current portfolio, understanding how rental yield fits into your broader tax and investment strategy is essential.
What is rental yield?
Rental yield is the annual rent a property earns as a percentage of its purchase price or current market value. It is used to compare how much income different properties may generate.
How do you calculate gross rental yield in Australia?
Gross rental yield is calculated using:
(Annual rental income ÷ property value) × 100.
For example, if rent is $650 per week and the property value is $720,000, gross yield is 4.7%.
How do you calculate net rental yield?
Net rental yield estimates what you keep after property expenses. A common formula is:
((Annual rent − annual property expenses) ÷ property value) × 100.
What expenses should be included in net rental yield?
Net yield usually includes property management fees, council rates, water charges, landlord insurance, repairs and maintenance, and an allowance for vacancy.
What is a good rental yield in Australia?
A good rental yield depends on the strategy and location. Roughly, 2 to 3 percent is common in high growth capital city suburbs, 4 to 5 percent is often considered balanced, and 6 percent or more is typically seen in higher yield regional markets.
Is a higher rental yield always better?
Not always. Higher yield properties can come with lower capital growth, higher risk, or higher ongoing costs. Many investors balance yield with long term growth potential and tax outcomes.
What is the difference between rental yield and ROI?
Rental yield measures rental income relative to the property value. ROI is broader and can include cash flow, holding costs, depreciation and other tax deductions, and capital growth.
Should I use purchase price or current market value?
Either can be used, but be consistent. Purchase price is common when assessing a potential purchase. Current market value can be useful for reviewing an existing portfolio.