What Is Rental Yield?
Rental yield is the annual rental return expressed as a percentage of the property's value. It's the fundamental measure of a property's income-generating performance.
There are three meaningful ways to measure yield — and most investors focus on the wrong one.
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Gross Rental Yield
Formula: (Annual Rent ÷ Purchase Price) × 100
Example: Property purchased for $650,000; weekly rent $550 ($28,600/year) Gross yield = ($28,600 ÷ $650,000) × 100 = 4.4%
Gross yield is the headline number you'll see advertised by real estate agents and property websites. It's useful for initial comparisons across markets, but it ignores all the costs of holding the property — which are substantial.
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Net Rental Yield
Formula: ((Annual Rent − Annual Costs) ÷ Purchase Price) × 100
Annual costs for a typical investment property include:
- Property management fees (typically 7–10% of rent)
- Council rates
- Water rates
- Strata levies (if applicable)
- Insurance
- Maintenance and repairs (estimate 0.5–1% of property value)
- Vacancy allowance (typically 2–4 weeks per year)
- Accounting fees
- Land tax (if applicable)
- Annual rent: $28,600
- Property management (8%): $2,288
- Council rates: $1,800
- Insurance: $1,400
- Repairs (0.5%): $3,250
- Vacancy (2 weeks): $1,100
- Other: $800
- Total costs: $10,638
This is a more honest picture — the property earning 4.4% gross is actually returning 2.76% net before financing costs.
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After-Tax Yield (The Real Number)
For a negatively geared investor, the relevant metric is the after-tax yield — the effective return once the tax benefit of deductions (including depreciation) is considered.
Continuing the example:
- Net income: $17,962
- Less: Loan interest (say $600,000 at 6.5%): $39,000
- Less: Depreciation: $8,500
- Assessable loss: $29,538
- Tax benefit at 37%: $10,929
- Cash position after tax:
So a property with a gross yield of 4.4% actually costs the investor $194/week — but they're building equity through loan repayment and capital growth potential throughout.
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What Yield Matters for Your Strategy?
Gross yield: Useful for quickly screening markets and comparing broad opportunities.
Net yield: Necessary for understanding actual running costs and cash flow requirements before financing.
After-tax yield: Essential for understanding your true cash commitment each week and modelling portfolio capacity.
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High Yield vs High Growth: The Trade-Off
Australian property markets broadly offer two investment profiles:
High Yield Markets (regional Queensland, parts of Western Australia, South Australia):
- Gross yields often 6–9%
- Lower capital growth historically
- Positive cash flow or near-neutral before depreciation
- Stronger immediate income, less capital accumulation
- Gross yields often 2.5–4%
- Historically higher capital growth
- Negative cash flow common; requires higher income to sustain
- Capital accumulation is the primary wealth strategy
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The Depreciation Bonus on Yield
Depreciation does not appear in a gross or net yield calculation, but it materially improves the real return. An additional $8,000 in annual depreciation at 37% = $2,960 in tax savings — equivalent to receiving an additional $56/week in after-tax income without any additional cash outlay.
Use Koste's free Rental Yield Calculator to calculate your gross and net yield, and the ROI Calculator to model your full after-tax return including depreciation.