When a property listing advertises "5.8% yield," that is almost always the gross yield. It looks great. It is also meaningless without context. Net yield, which accounts for all the costs of owning the property, is typically 1 to 2 percentage points lower. Buying on the gross yield figure without calculating the net is one of the most common mistakes first-time investors make.
Here's how to calculate both, why the difference matters, and what to look for when comparing properties.
Gross rental yield: the formula and what it tells you
Gross yield is simple to calculate and widely reported. Here's the formula:
Example: You're looking at a property listed at $480,000. The current weekly rent is $520.
- Annual rent: $520 × 52 = $27,040
- Gross yield: $27,040 / $480,000 × 100 = 5.63%
What gross yield is useful for: quick comparison between properties and markets. It lets you screen out obviously low-yield areas fast. If a market is averaging 2.8% gross yield, you can immediately see that cash flow will be very negative before you run a single other number.
What gross yield doesn't tell you: whether the property covers its costs, how much it costs to actually hold each year, or what your real return on capital is after expenses. That's what net yield is for.
Net rental yield: the formula and what it actually tells you
Net yield gives you a realistic picture of what you're actually earning relative to what you've invested. The formula is:
Notice the denominator includes acquisition costs, not just the purchase price. That's your true capital invested, and it's what a rigorous yield calculation should be based on.
Using the same $480,000 property from the example above:
Annual holding costs:
- Property management fees (8.5% of rent collected): $2,298
- Council rates: $1,600
- Water rates (owner's portion): $800
- Landlord insurance: $1,200
- Maintenance allowance (0.5% of property value): $2,400
- Vacancy allowance (2 weeks): $1,040
- Total annual holding costs: $9,338
Net annual income: $27,040 − $9,338 = $17,702
Total acquisition cost (QLD purchase):
- Purchase price: $480,000
- Stamp duty (QLD): $17,350
- Legal and conveyancing: $2,000
- Buyer's agent fee: $10,000
- Total: $509,350
Net yield: $17,702 / $509,350 × 100 = 3.47%
what agents quote
what you actually earn
The gross yield was 5.63%. The net yield is 3.47%. That's the real return on your capital before loan costs. The gap is 2.16 percentage points. This kind of gap is typical. On cheaper properties with high strata fees, the gap can be even larger.
What costs to include in your net yield calculation
To get an accurate net yield figure, include all of the following:
- Property management fees. Typically 7 to 10% of rent collected, plus a letting fee of 1 to 2 weeks rent each time a new tenant is placed. Use the actual rate your property manager charges.
- Council rates. Varies significantly by council and property type. Budget $1,200 to $2,000 per year for most houses and units.
- Water rates. In most states, the owner pays the supply and service charge. The tenant pays usage. Budget $600 to $1,000 per year for the owner's portion.
- Landlord insurance. Typically $800 to $1,500 per year depending on property type, location, and insurer. Don't skip this or use a low figure as a placeholder. It matters when you need it.
- Repairs and maintenance allowance. Budget 0.5 to 1% of property value per year. On a $480,000 property that's $2,400 to $4,800. Older properties trend toward the higher end. Never budget zero.
- Vacancy allowance. Budget a minimum of 2 weeks per year even in tight rental markets. Tight markets can change. A 1 to 2% vacancy rate suburb might have near-zero vacancy today, but you should build in a realistic buffer.
- Strata levies (if applicable). For apartments and townhouses in a strata scheme, this is often the biggest variable cost. Levies can range from $2,000 to $8,000 or more per year depending on the building, its age, and any outstanding remediation works. Always request the strata report and check the sinking fund balance before buying.
What not to include in yield calculations: mortgage interest, depreciation, and income tax effects. These affect your cash flow position and tax outcome but are not part of the yield calculation itself. They belong in a separate cash flow analysis.
The gross-to-net gap by property type
The gap between gross and net yield is not uniform across property types. Here's how it typically breaks down:
- Freestanding house with no strata: gap typically 1.5 to 2 percentage points. Lower ongoing costs and no strata fees keep the spread relatively tight.
- Unit or apartment without strata (no body corporate): similar to a house.
- Unit or apartment with strata levies: gap typically 2.5 to 3.5 percentage points. Strata fees significantly erode net yield, especially in older buildings with higher maintenance obligations.
Example: A $450,000 apartment with a 5.5% gross yield generates $24,750 in annual rent. If strata fees are $6,000 per year, plus property management, insurance, rates, and maintenance, the total holding costs could easily reach $13,000 to $14,000. That brings net yield to approximately 2.5 to 3%. A gross yield that looked attractive becomes a very expensive hold once strata is accounted for.
This is one reason I'm generally cautious about apartments as investment vehicles unless the numbers are exceptional on a net basis and the strata financials are clean.
What is a good rental yield in Australia in 2026?
Yield benchmarks differ materially by city. Here are approximate gross yield ranges for each major market:
| City / Region | Approx. Gross Yield Range | Notes |
|---|---|---|
| Sydney | 2.8% to 3.5% | Low yield, historically strong capital growth |
| Melbourne | 3.0% to 3.8% | Compressed yields, high holding costs |
| Brisbane | 4.2% to 5.0% | More balanced yield and growth profile |
| Adelaide | 4.8% to 5.8% | Strong yield with structural demand tailwinds |
| Perth | 4.5% to 5.5% | High yield with improving growth fundamentals |
| Regional markets | 5.0% to 7.0% | Higher yield, more variable growth and liquidity |
As a general rule, 4.5% or above in gross yield is the minimum I look for in a market where I'm targeting rentvesting clients. In the current interest rate environment, with investor mortgage rates sitting in the 5 to 6% range, you need a gross yield of at least 4 to 4.5% to get anywhere near cash flow neutral. A 3% gross yield means heavy negative cash flow from the first rent payment, and that gap compounds every month.
A 3% gross yield isn't automatically wrong if the capital growth case is compelling and the client can comfortably service the shortfall. But I want clients to go into that position with clear eyes, not because they read a listing and missed the calculation.
Yield and capital growth: the trade-off
There is a long-standing pattern in Australian property: markets with higher yields tend to have more subdued capital growth, and markets with lower yields (Sydney in particular) have historically delivered stronger long-run capital growth.
Neither end of that spectrum is automatically the right choice. A 6.5% yield in a regional market with flat to no capital growth may deliver worse total return over 10 years than a 4.5% yield in a city market with 6 to 7% annual capital growth. The maths depends on the holding period, the loan structure, and what happens to rents over time.
The property type I look hardest for is the one that sits at both ends to a reasonable degree: enough yield that the cash flow shortfall is manageable, in a market with genuine structural capital growth drivers rather than speculative demand. Adelaide's outer northern suburbs are a current example of that combination. Gross yields of 5.5% or higher in suburbs with genuine population growth, infrastructure spending, and AUKUS-linked employment demand. That combination is rare, and it doesn't stay available indefinitely when the market figures it out.
How to cross-check a yield claim in a listing
Not all advertised yields are what they appear to be. Here's how I verify them before putting a client's money on the line:
- Ask for the rent history, not just the current rent. Has the property actually been tenanted at the advertised rent, or is it a rental appraisal from an optimistic property manager? There's a meaningful difference. Ask for the last 12 months of tenancy ledger if the property has been investment-held.
- Check comparable rental listings. Search realestate.com.au or domain.com.au for similar properties (same bedroom count, similar condition, same suburb) currently available for rent. If comparables are $50 per week below the advertised rent, that's the actual market rate, not the listing.
- Check suburb vacancy rates. SQM Research publishes suburb-level vacancy data. A vacancy rate above 3% indicates meaningful competition for tenants and suggests the advertised rent may be aspirational.
- Be skeptical of yields on owner-occupied properties. If a property has been owner-occupied and the agent is advertising a yield, that figure is an estimate from a rental appraisal, not a proven tenancy rate. Treat it as directional, not confirmed.
- For apartments: request the strata report and sinking fund balance. A building with a depleted sinking fund and deferred maintenance is a yield trap. The strata levy can increase sharply if the building needs major works, and that directly destroys the net yield you modelled at purchase.
Disclaimer: This article is general information only and not financial or tax advice. Speak to a qualified accountant or financial adviser before making investment decisions.
Sources:
ATO guide to rental income and expenses: ato.gov.au: Rental income
SQM Research vacancy rates by suburb: sqmresearch.com.au: Vacancy rates
CoreLogic rental market data: corelogic.com.au: Research and insights
PropTrack rental insights: proptrack.com.au: Market insights
