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

$2,000

$2,500

$2,000

$3,500

$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