Rental Yield Explained: How to Calculate Gross and Net Yield
Rental yield tells you how much income an investment property earns relative to its value. It’s one of the quickest ways to compare properties, but it’s only useful if you calculate it properly and understand what it leaves out.
Gross rental yield
Gross yield is annual rent divided by the property’s value, multiplied by 100.
Example: a property worth $900,000 that rents for $800 a week earns $41,600 a year.
$41,600 ÷ $900,000 × 100 = 4.62% gross yield
Net rental yield
Net yield takes off the costs of owning the property first: council and water rates, strata, insurance, property management, repairs, land tax and an allowance for vacancy.
Example: if those costs total $12,000 a year:
($41,600 − $12,000) ÷ $900,000 × 100 = 3.29% net yield
Interest isn’t usually included in net yield, because it depends on how the property is financed rather than the property itself. Work it out separately to see your real cash flow.
What yield doesn’t tell you
- Capital growth: a lower-yielding property in a strong area may outperform a high-yield property over time
- Vacancy risk: a high advertised rent means little if the property sits empty
- Future costs: older buildings and strata schemes can carry major repairs
- Tax: depreciation and deductions change your after-tax return, so speak to your accountant
Residential vs commercial yields
Commercial property generally offers higher yields than residential, partly because tenants often pay outgoings and leases run longer. In exchange, vacancies can last longer and lenders usually require a bigger deposit. See how much deposit you need for a commercial property loan.
How yield affects your borrowing
Lenders use rental income to work out how much you can borrow, but they usually count only part of it to allow for vacancies and costs. For commercial property they also look at the tenant, the lease term and how many times the rent covers the interest. Read more about finance for property investors and commercial property finance.
Frequently asked questions
What is a good rental yield in Australia?
It depends on the location and property type. Houses in capital cities often have lower yields but stronger long-term growth, while units and regional property often yield more. Compare yields for similar properties in the same area rather than chasing a single number.
Is gross or net yield more important?
Net yield, because it accounts for the costs of owning the property. Gross yield is useful for quickly comparing properties; net yield tells you what you actually earn.
Do lenders count all of my rental income?
Usually not. Lenders typically count only part of the rent, often around 70% to 80%, to allow for vacancies and costs, and commercial lenders look closely at the lease.
Talk to Peak Capital
Book a free 15-minute call with a Sydney commercial finance broker. We’ll tell you what you can borrow and which lenders fit your situation.
This article is general information only and doesn’t take into account your objectives, financial situation or needs. Speak to us or your accountant before making a decision.
