When investors talk about how “good” a property is, they usually reach for one number first: its rental yield. Yield expresses the rent a property produces as a percentage of what the property is worth. It turns a rent figure and a price figure — which on their own are hard to compare — into a single rate you can line up against other properties, other suburbs, or even a term deposit.
A $500,000 property earning $25,000 of rent a year has a yield of 5%. A $900,000 property earning $36,000 has a yield of 4%. The first property is the harder worker per dollar invested, even though the second collects more rent in absolute terms. That is the whole point of yield: it normalises for price.
There are two yields, and they answer different questions
Almost every argument about rental yield comes down to whether someone is quoting the gross figure or the net figure. They can be nearly a percentage point apart on the same property.
Gross yield
Annual rent ÷ property value × 100
The headline number. It shows the rent a property brings in relative to its price, before a single expense is paid. Gross yield is fine for a first-pass comparison of one property against another, but it flatters the return because it ignores the real cost of holding the property.
Net yield
(Annual rent − running costs) ÷ property value × 100
The honest number. It subtracts the ongoing costs of ownership — council rates, insurance, management fees, maintenance, strata and the like — before dividing by the value. Net yield is much closer to what you actually keep, which is why experienced investors lead with it.
A worked example
Take a $750,000 property renting at $650 per week. Over a year that is $33,800 in rent, so the gross yield is 4.51%. Now subtract $6,500 of annual running costs — rates, insurance, management and maintenance — and you keep $27,300. Divide that by the $750,000 value and the net yield is 3.64%.
Same property, same rent, but nearly a full percentage point separates the two numbers. That gap is the cost of ownership — and it is exactly what a gross-yield headline hides.
What rental yield doesn't tell you
Yield is a useful starting point, not a complete picture. On its own it leaves out four things that materially change your actual return:
- Loan interest — yield measures the property itself, not how you financed it. Two investors can hold the same property at very different net cash positions depending on their loan.
- Capital growth — the change in the property's value over time is a separate, and often larger, part of the total return. A low-yield property can still be an excellent investment if it grows in value.
- Tax — depreciation, deductions and your marginal rate all affect what you ultimately keep. Yield is a pre-tax measure.
- Vacancy — most yield calculations assume the property is rented every week of the year. Real vacancy pulls the achieved return below the quoted one.
Yield is one lever, not the whole return
The total return on a property is its rental income plus its capital growth, less the costs of holding and financing it. Yield captures the income side well and ignores the rest. That is why a high-yield property in a slow-growth area and a low-yield property in a fast-growth area can end up producing very similar returns over a decade — the balance simply sits in different places.
The practical takeaway: use yield to compare the income efficiency of properties, but never judge an investment on yield alone. Look at it alongside capital growth, cash flow after finance, and equity built over time.
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