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How do I calculate yield?

The rental yield generated by an investment property can play a key role in deciding which property to buy. Let’s unpack what ‘yield’ is, how it’s calculated, and what a typical yield looks like around the nation.

One of the great aspects of owning an investment property is that you can expect to earn two types of returns – capital gains plus regular rental income.

As capital gains will be made in the future when you sell the property, it is impossible to say with 100% accuracy what the gain will be.

It’s a very different story with rent returns.

Tenants sign a lease that specifies a regular rent, so investors can work out the ongoing return their asset will generate by looking at the rental yield.

Gross versus net yield

Research companies such as CoreLogic regularly publish figures for property yields. This is always the ‘gross’ (before costs) yield because the ongoing costs will vary between properties.

Even so, gross yield is useful to know as a tool to compare between various investments.

Gross yield is calculated as follows:

Gross yield = Annual rent ÷ property value x 100

For example, let’s say Nicki pays $500,000 for an apartment that she rents out for $450 per week. As there are 52 weeks in a year, her annual rent will be $23,400.

Nicki’s gross yield can be calculated as:

$23,400 ÷ $500,000 x 100 = 4.68%

However, gross yield provides just one part of the picture.

Rental properties come with regular outgoings such as insurance, strata levies and repairs and maintenance. These outgoings are taken into account when it comes to calculating ‘net’ yield, which is calculated in this way:

Net rental yield = Annual rent less property costs ÷ property value

By considering regular costs, net yield can help an investor decide between two different properties. Here’s an example.

We’ll say Lee has narrowed his choice down to two apartments. Both have an asking price of $600,000, and both have similar capital growth prospects. Each apartment is expected to generate annual rent of $24,000.

However, the outgoings of the two apartments are different. Apartment 1 is older so may need more repairs, while Apartment 2 is newer and has more facilities, so the strata levies are higher.

The table below shows how Lee can calculate which property will deliver the higher net yield. It turns out that Apartment 1 has a higher net yield of 3.08% compared to 2.9% for Apartment 2.

	Apartment 1	Apartment 2
Property value	$600,000	$600,000
Annual rent	$24,000	$24,000
Yearly strata levies	$2,000	$2,500
Insurance	$2,000	$3,500
Repairs	$2,500	$500
Total outgoings	$5,500	$6,500
Net yield	3.08%	2.9%

 

Of course, a variety of factors will shape your choice of investment property – not just yield. But it’s handy to have an idea of the net yield when comparing potential properties.

Gross yields around Australia

Gross yields vary across locations and also between different types of properties. As a general rule, houses tend to have lower rental yields though the upside can be higher long term capital growth.

The table below shows the gross yields across Australia’s capital cities for October 2024. Bear in mind, yields will change in line with shifts in rent and property values.

Gross yields – October 2024
	Sydney	Melbourne	Brisbane	Adelaide	Perth	Hobart	Darwin	Canberra
Houses	2.7%	3.2%	3.5%	3.5%	4.0%	4.2%	6.1%	3.7%
Units	4.0%	4.8%	4.6%	4.7%	5.6%	4.5%	7.9%	5.1%
Source: CoreLogic Hedonic Home Value Index 1 October 2024[1]



Like to know more about how rental yields work? Speak with your local Raine & Horne team for expert insights in your neighbourhood. 

[1] https://www.corelogic.com.au/__data/assets/pdf_file/0012/24303/CoreLogic-HVI-Oct-2024-FINAL.pdf

Rising cattle prices and improved rainfall spark positive outlook for rural property markets

The latest insights from Rural Bank reveal encouraging signs for rural property markets, driven by shifts in cattle and dairy prices.

According to the October Insights from Rural Bank, cattle prices are likely to see a marginal increase with a firming of restocker demand and a slight reduction in cattle yardings at local markets.

Slaughter rates have remained stable but are expected to show a modest decline during October, should the rainfall forecast eventuate as supply chain issues and a reduction of cattle on local markets slow processing capacity.

The latest Bureau of Meteorology forecasts, as noted by Rural Bank, also show a strong chance of above-average rainfall in major cattle regions in the coming months. This is expected to increase restocker demand and decrease cattle yardings marginally. Both factors would support an uplift in prices.

Australian beef is set to benefit from an expected increase in US imports throughout the rest of 2024. This should mean that extremely high Australian beef exports to the US are maintained. Import demand for Australian beef is likely to remain on par with 2024 levels throughout the majority of 2025 as well. Australia has now climbed to be the US’s second-largest source of beef imports, just behind Canada. In 2023, Australia was ranked the fifth largest supplier. Australia has contributed over 20% of the total US beef import volume in 2024. This is up from 14% in 2023, highlighting the extraordinary year of exports to the US.

In September, southern Queensland and northern New South Wales experienced average rainfall, keeping these regions on track for a promising above-average crop season.

Meanwhile, Rural Bank reported that global dairy prices increased in the past month. This suggests an improvement in global demand. The Global Dairy Trade (GDT) index rose in each of the last two fortnightly auctions for a total gain of 1.9%. This placed the GDT index 22.1% higher year-on-year and at its highest point since October 2022. Price trends have varied across the major dairy products. Cheddar saw the largest gains in the last month, up 6.5% - and continues the steady climb in cheddar prices, which have risen 15.7% since July. Whole milk powder (WMP) also grew in the last month, up 4.8% to its highest point since October 2022. Skim milk powder (SMP) prices were relatively steady in the recent GDT auction.

Travis Wentriro, Network Manager at Raine & Horne Rural, said, “The recent insights from Rural Bank highlight key drivers that could boost demand for rural properties.

“The anticipated rise in cattle prices, supported by more robust restocker demand and improved rainfall in major cattle regions, creates a positive outlook for graziers. This potential for better returns in the livestock sector will likely attract investors looking for reliable rural property assets.

Contact your local Raine & Horne Rural office today if you’re considering listing a rural property.

Australian real estate records 20th straight month of growth

Australia’s favourite asset class continues to motor along at a steady pace, with residential real estate recording growth of 0.4% in September, according to CoreLogic.

Perth led the charge in September with a 1.9% growth, followed by Adelaide at 1.3%. Brisbane was next, posting just under 1% growth for the month, while Sydney continued its steady rise, remaining in positive territory.

Though CoreLogic’s research shows an easing trend, regional housing markets remain in positive growth territory. The combined regionals index saw a 1.0% increase over the September quarter. Like the capital cities, regional areas in WA (+3.6%), SA (+2.3%), and Queensland (+2.0%) are driving growth in regional housing markets.

Meanwhile, spring listings coming onto the market are tracking 14% higher than a year ago nationally, according to data from Raine & Horne, as savvy property owners seek to take advantage of real estate’s almost two-year run of growth.

More vendors choosing to list properties now makes sense on several levels, according to Angus Raine, Executive Chairman, Raine & Horne. “Spring is traditionally the peak season for real estate, as many vendors believe their properties show at their best during this time, and buyer demand remains strong, despite the persistence of the Reserve Bank in keeping interest rates at their current high levels.” According to Raine & Horne data, groups at open for inspections are higher than September 2023, and over 36% higher than two years ago.

According to Angus Raine, the immediate outlook for housing markets is for further growth. “With inflation heading in the right direction, a rate cut will eventually come sooner rather than later.

“The supply of new properties appears to be gridlocked due to several factors, including government red tape, lack of tradespeople, and higher building costs, which will underpin real estate values in the long term.

Angus continues, “While I’d like to see stamp duty tax breaks considered by state governments to encourage empty nesters or people over the age of 70 to sell up family homes that are now superfluous to needs to help address supply issues, I’m encouraged that the Federal Government appears to be stepping back from talk of proposed changes to property tax incentives, such as the 50% capital gains discount for investment properties and adjustments to negative gearing.

“However, after the challenges our industry faced during the 2016 and 2019 federal elections, we must stay vigilant. It would be a bold move to change the current investment property taxation regime.”

For an obligation-free appraisal of your home’s or investment property’s value for a spring sale, contact your local Raine & Horne office today.

Should I get a building inspection for my next property?

Purchasing a property is a significant investment, so the last thing you want is to be stuck with unexpected expenses to fix faults such as rising dampness, movement or cracking in the walls, safety hazards or a defective roof.

That said, most contracts require a buyer to obtain a building report and a pest report to check for creepy crawlies such as termites, white ants, and other pests that can damage the property.

A building inspection by a licensed building inspector will reveal any potentially costly structural or safety issues within a property. It will also outline what work needs to be completed to return a property to a safe and comfortable standard and the estimated cost for completing the repairs. For a buyer, it can give you some understanding of whether it’s a good buy or a lemon. It’s a little like buying a used car from a private seller. Getting a mechanic to look under the bonnet before you hand over your hard-earned money is always advisable. Likewise, before buying a house, get a building inspector to run their eye over the property. According to Hipages, there is no flat rate for building inspection costs. The fee will largely depend on the size of the property. Expect to pay around $200–$300 for a smaller property and $400–$500 for an average-sized house. Pest inspections can be completed simultaneously for $100 and $150 extra[i].

In most states and territories, buyers must pay for building and pest inspections. Additionally, when house hunting, you might need to order inspection reports for multiple properties, so it’s important to factor this expense into your budget.

If you are buying a brand-new property with new fixtures and fittings, don’t take it as gospel that everything is in perfect working order. The trouble is that new properties won’t immediately reveal any structural issues, and if you have recently secured a property off-the-plan from a developer, it is recommended that you organise a “handover report.”

A “handover report” is a comprehensive report of a newly built property by an independent builder and covers the interior of the apartment and external areas where possible and includes items such as the quality of the final finishes, including paintwork, plastering and tiling, as well as external cladding and finishes to balconies, as well as walls, ceilings and floors. Its purpose is to ensure that you are protected from any substandard workmanship while it also assesses the structural integrity of the building by highlighting, in detail, any defects and imperfections.

Prices to carry out a handover inspection report start at $380 for a unit[ii], and depend on your state or territory and the builder you hire. However, it is a worthwhile investment that can spare you the financial burden of fixing possible defects to a brand new property in the future.

To discuss your property buying options, speak to a Raine & Horne agent today.

[i] https://hipages.com.au/article/how_much_does_a_building_inspection_cost

[ii] https://www.inspectmyhome.com.au/handover-inspections-reports.html#:~:text=Prices%20to%20carry%20out%20a,office%20for%20an%20accurate%20quote.

As a tenant can I make improvements to my rental property?

When you move into a rental property, it’s natural to want to personalise the living spaces. But what changes can you make freely, and which ones require permission?

You might want to install hooks for wall hangings, set up phone or internet lines, install a satellite dish, pay television services, or add extra power points. Other potential changes include water-saving or hand-held shower heads, new window coverings such as curtains or blinds, flyscreens for doors and windows, or even starting a herb or vegetable garden if you have a green thumb. The changes you can make depend on where you live and the specific rules for the property you’re leasing.

In NSW, for example, tenants must request permission to make changes, but landlords cannot refuse minor alterations. However, tenants must restore the property to its original condition at the end of the tenancy, ensuring it’s returned to the same state as when they moved in.

In Queensland, the tenant can only attach a fixture or make a structural change if the property manager/owner agrees. Requests for approval should be in writing and describe the change and whether the fixture will be removed.

Tenants can ask their landlord for permission to make minor alterations or safety modifications in South Australia as long as they don’t affect the structure of the premises. Alterations or additions that are minor, necessary for disability assistance, or needed for mobility and access due to age cannot be unreasonably refused by the landlord. When requesting changes, tenants should provide details about the nature of the modifications and how the property will be restored afterwards. Consent must be given by the landlord in writing.

In Western Australia, a tenant can make small changes, called minor modifications, with the landlord’s permission. The tenant must ask for permission using Form 26 (Minor Modification request form). The landlord can refuse for limited reasons. For example, a landlord can refuse if a law or strata rule prevents the change, the change will disturb asbestos, or the home is heritage listed.

As a rule of thumb, it’s always a good idea to check with your Raine & Horne Property Manager if you’re unsure whether an improvement might breach your tenancy agreement.

Get ahead of the game by spotting rising stars in rugby and real estate

In real estate, timing can be significant – just like in rugby.

Just as savvy investors in Australia and New Zealand look for the next real estate hotspot before the rest of the market catches on, the Wallabies will be hoping to get the jump with their rising stars before the All Blacks unleash their full power in Saturday’s Bledisloe Cup match up.

It’s all about spotting an opportunity early, whether in a suburb or town or on the rugby pitch at Sydney’s Olympic Stadium and then making sure you’re ahead of the game when things heat up.

The Wallabies are bracing for a fired-up All Blacks outfit, fresh from their winless tour of South Africa, to come hard at them in the first game of the Bledisloe Cup in Sydney on Saturday.

The Australians, who last sipped sweet victory from the massive silverware that is the Bledisloe Cup, was way back in 2002 when star halfback George Gregan was leading the charge and the other George…. Smith was the incredibly talented openside flanker and the Wallabies rising star. The Wallabies probably wish they had 15 rising stars like Smith to take on the world-famous ABs this weekend. But let’s be honest – ending the 22-year Bledisloe Cup series drought is probably a bridge too far.

Flashback to 2002, and things were different. Vodafone sponsored the Cadbury Wallabies, and real estate prices were almost unrecognisable – a bit like the Wallaby backline in 2024. Back in the rugby union stronghold of Sydney, the median house price was $413,000, but now it’s edging closer to $1.4 million[i]. In Brisbane, another long-term source of Wallaby players, prices have skyrocketed from $198,000 to $885,500 over the last 22 years of All Black’s dominance. When the ABs started their winning streak, average house values in the rugby stronghold of Auckland were around $270,000[ii] – now they’re a thumping $1.062 million[iii]. In Wellington where the second leg of the Bledisloe Cup will be held on 28 September, average asking prices are a flick pass above $842,000[iv].

Lessons from rugby and real estate

Everyone is hunting for the next rising star in rugby and real estate. Like All Black rugby scouts on the hunt for the next Ardie Savea or a long-lost talented Barrett, real estate investors know the thrill of uncovering up-and-coming star turn. These exciting hotspots are often areas that are underperforming, and usually lying in the shadows of more popular suburbs.

Meanwhile, the wise old heads in the property engine room, like seasoned rugby pros, stay calm when interest rates are rising, vacancy rates are jumping, and values are softening. These investors play it safe, avoiding risky passes and focussing on long-term gains.

For savvy property investors, having the right mix of properties is like building a rugby squad. So, while your team should have a balance of different types of properties, quality, well-located properties are more likely to perform when the going gets tough and holding the fort when the try line is under siege. A sound investment portfolio will start with quality, well-located properties with appealing features such as a second bathroom, a garage, and access to schools, shops, and transport.

Like an expert rugby coach constantly adapting to the International Rugby Board’s never-ending flow of law changes, savvy investors will know about proposed planning changes in the suburb, or major infrastructure projects such as new railway stations, major roads, and even aviation improvements.

Flexibility can also be pivotal in rugby and real estate investing, with different approaches required in various conditions. While a fast-paced style of play with lots of long cutout passes might work well in the sun, the old ‘keep it in the forwards’ approach might be more appropriate during a downpour. The same is true with investing in property. You need to factor in that the spring might bring more properties onto the market for sale, while also factoring in the costs of ownership such as council and water rates, building insurance, landlord insurance, body corporate fees, land tax, land tax, property management fees and repairs and maintenance costs.

Like a skilled rugby coach, experienced investors understand that outstanding results depend on treating their tenants with respect, maintaining clear and transparent communication, and trusting their support teams led by their Raine & Horne property manager to keep the game running smoothly.

Finally, as a fan, getting home from Accor Stadium in Sydney or Wellington’s Sky Stadium takes ages. Of course, you could leave early, but then you risk missing a winning five-pointer. However, smart phones allow you to leave early and continue to watch the match as you exit the stadium. The property investing equivalent of beating the crowds out of the ground early, is trying to make your real estate move before everyone else jumps in – by doing your market research, getting a preapproved investment property loan and taking advice from your local Raine & Horne agent.

With the RBNZ already reducing rates and with some predicting up to four rate cuts from the RBA in 2025, now is the ideal time for property investors to act – especially with real estate experts on both sides of the Tasman believing that markets have bottomed and are beginning to recover.

If you are considering selling or buying a property as the end-of-season rugby internationals heat up, contact your local Raine & Horne office today.

[i] https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/total-value-dwellings/latest-release#data-downloads
[ii] https://www.stuff.co.nz/life-style/homed/real-estate/127773204/how-much-harder-is-it-to-buy-a-house-in-2022-than-in-2002
[iii] https://news.realestate.co.nz/blog/new-zealand-property-market-2024-august
[iv] https://news.realestate.co.nz/blog/new-zealand-property-market-2024-august

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