What Is Rental Yield & How Do You Calculate It?
What Is Rental Yield & How Do You Calculate It?
When assessing the investment potential of a property, one of the key financial indicators to understand is rental yield. It’s a simple yet powerful calculation that helps determine how much income your investment property is likely to generate.
What Is Rental Yield?
Rental yield is a percentage that reflects the return you receive from your investment property based on the income it generates compared to its value. It gives you a quick insight into how well your property is performing financially and helps determine whether it aligns with your investment goals.
Before purchasing a property, it’s wise to compare rental yields across different suburbs and property types to identify options with strong income potential.
Gross Rental Yield
Gross rental yield is the most basic form of the calculation. It doesn’t take into account any expenses—it simply compares the income to the property’s purchase price.
How to calculate gross rental yield:
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Determine the annual rental income.
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Divide the annual rent by the property value.
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Multiply the result by 100 to get a percentage.
Example:
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Annual rent = $30,000
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Property value = $500,000
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Calculation: ($30,000 ÷ $500,000) × 100 = 6% gross rental yield
Net Rental Yield
Net rental yield gives a more accurate picture by factoring in the ongoing costs of owning the property. This includes expenses such as maintenance, rates, management fees, and insurance.
How to calculate net rental yield:
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Add up all annual property expenses.
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Subtract the expenses from the annual rental income.
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Divide the result by the property value.
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Multiply by 100 to get a percentage.
Expenses to consider may include:
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Property management fees
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Repairs and maintenance
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Body corporate fees
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Council rates and water charges
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Insurance
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Vacancy periods
Note: Mortgage interest isn't included in net yield calculations, as it relates to your personal financial setup and is typically tax deductible.
What’s Considered a Good Rental Yield?
There’s no one-size-fits-all answer. What’s considered a “good” yield will depend on a range of factors, including:
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Your investment strategy (cash flow vs. capital growth)
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Your tax position and income
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Property type (residential, commercial, etc.)
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Location and market conditions
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Long-term economic outlook
As a general rule of thumb, the Commonwealth Bank of Australia suggests aiming for a rental yield of 5% or higher for a strong-performing investment.
Final Thoughts
Rental yield is a key metric to consider when buying an investment property—but it’s not the only one. High yields can improve cash flow, but may sometimes come at the expense of capital growth potential.
Always look at the total return over time and align your decisions with your long-term investment strategy.
Keen to make sense of rental yield?
Whether you're just getting started or fine-tuning your investment strategy, we’re here to help you feel confident every step of the way. Reach out anytime—our JKL family is ready to help you make smart moves with heart.
Disclaimer: The information provided above is general in nature and does not constitute financial or professional advice. While all care is taken, no warranty is given to its accuracy. Always seek independent professional advice before making any investment decisions 😊