Two properties can advertise the same gross yield and hand you very different net returns, and the entire difference is their running costs. Expenses are not a footnote to yield — for a strata unit with heavy body corporate fees, they can consume a third of the rent before you see a cent. This guide is about the cost side of the yield equation specifically: what counts, how much it hurts, and what to do about it.
For the broader gross-versus-net distinction, see gross vs net rental yield. This guide goes deeper on the expenses themselves.
Costs are the gap between gross and net
Net yield is gross yield minus the drag of expenses. Put precisely, the difference between the two figures, in percentage-point terms, is simply annual costs divided by the property value:
Yield drag (pp) = (Annual running costs ÷ property value) × 100
On a $700,000 property, $8,400 of annual costs is a 1.2 percentage point drag — it turns a 4.6% gross yield into a 3.4% net yield. That single number is the price of ownership, and it is why the same rent can mean very different things on two otherwise similar properties.
Which expenses count against yield
Yield uses the recurring costs of holding the property — the ones that exist year after year whether or not the property changes hands or is renovated:
- Property management — typically 5%–8.8% of rent collected, plus letting and lease-renewal fees. Scales with rent, so it grows as rent rises.
- Council and water rates — fixed regardless of occupancy.
- Strata / body corporate fees — often the single largest line for a unit, and the main reason unit net yields trail their gross figures.
- Landlord and building insurance — building cover plus loss-of-rent and liability protection.
- Repairs and maintenance — a realistic annual allowance; even a well-kept property averages meaningful spend over time.
- Land tax — where your total holdings exceed the state threshold; it can escalate sharply as a portfolio grows.
How much each one typically drags
As a rough guide, on a typical residential property the running costs above together consume 20%–30% of gross rent — pushing net yield to roughly three-quarters of gross. The mix, though, varies enormously by property type:
Freestanding house
No strata, so costs are lighter — rates, insurance, management and maintenance. Running costs often land nearer 20% of rent, keeping net yield closer to gross.
Strata unit or apartment
Body corporate fees can add thousands a year on their own, so total costs frequently reach 30%–35% of rent. The gross yield may look higher than a house, but the net gap is wider.
How sensitive net yield is to costs
Because costs come straight off the top, net yield is highly sensitive to them — and the effect is symmetric. Every dollar of cost removed lifts net yield by exactly as much as a dollar of extra rent. That is worth sitting with: negotiating $1,000off your annual costs does the same thing to your net yield as winning a $1,000rent rise, and it is usually easier to achieve.
A $600,000 unit rents at $500 a week ($26,000). Watch net yield move as costs change:
- Costs $5,000 (19% of rent) → net yield 3.50%
- Costs $7,500 (29% of rent) → net yield 3.08%
- Costs $10,000 (38% of rent) → net yield 2.67%
Same property, same rent — but the cost profile alone swings net yield by more than 0.8 of a percentage point. This is exactly the range that separates a good hold from a mediocre one.
What doesn't belong in yield
Just as important as knowing which costs count is knowing which ones do not, because including them quietly understates your yield:
- Loan interest and principal. Financing, not a property cost — it belongs in cash flow, which is personal to how you borrowed.
- Stamp duty and purchase costs. One-off capital costs, not recurring holding costs. They affect your total return and cash-on-cash figure, not yield.
- Capital improvements. A renovation changes the property's value (the denominator) and possibly its rent — it is not a running cost to deduct.
Those distinctions overlap with — but are not the same as — the costs that belong in a cash flow calculation. For that framing, see investment property expenses: what to include in cash flow.
Where the biggest savings sit
If cutting costs lifts net yield as effectively as raising rent, it is worth knowing where the recoverable money usually is. In descending order of typical impact: strata fees (limited room, but large), management fees (re-quotable), insurance (re-shoppable annually), and maintenance (cheaper when planned than when reactive). Rates and land tax are largely fixed. Attack the negotiable lines and leave the fixed ones alone.
The prerequisite for all of this is actually seeing your costs per property in one place — which is where a tracker that files every expense against the right property turns a vague sense that “costs are up” into a specific line you can act on.
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