Rental yield is the annual rent income expressed as a percentage of the property's value. It's the starting metric for comparing investment properties — but the difference between gross and net yield matters enormously.
Gross vs. net rental yield
Gross yield = (annual rent ÷ property price) × 100. Simple but incomplete. A $350,000 property renting for $1,900/month has a gross yield of 6.5%.
Net yield accounts for vacancies, property management fees, insurance, maintenance, and council/property taxes — typically reducing yield by 2–3 percentage points. The same property might net 4.2% after costs.
What counts as a good rental yield
- Below 4%: Thin margin, especially with leverage. Only worthwhile in high-capital-growth markets.
- 4–6%: Solid range in most developed markets. Covers costs and provides reasonable cash flow.
- 6–8%: Strong yield. Common in regional cities and emerging markets.
- Above 8%: High yield, but often signals higher vacancy risk or significant property issues.
Yield vs. capital growth: the trade-off
High-yield properties (often found in lower-income areas or regional towns) tend to appreciate slowly. Low-yield properties (city centres, premium suburbs) often grow in value faster but produce little or negative monthly cash flow. Your investment strategy should determine which you prioritise.
The vacancy rate factor
A property empty for 4 weeks per year effectively loses 7.7% of annual rent income. At a 6% gross yield, that single vacancy period drops your actual yield to around 5.5%. Always model at least 4 weeks vacancy in your projections.
Frequently Asked Questions
Is a 5% gross rental yield enough to produce positive cash flow?
Probably not in most markets. After subtracting property management fees (8–12% of rent), insurance, maintenance, and vacancies, a 5% gross yield typically nets around 2.5–3.5%. If your mortgage interest rate exceeds that, the property will run at a monthly loss — known as negative gearing. Whether that is acceptable depends on your capital growth expectations and tax position.
How does leverage affect rental yield?
Leverage amplifies returns on actual cash invested. If you buy a $300,000 property with $60,000 down (20%) and it earns $15,000/year in rent, your cash-on-cash return on invested capital is 25% — much higher than the gross yield of 5% based on total property value. But leverage also amplifies losses if values fall or vacancies rise unexpectedly.
Should I prioritise yield or capital growth?
This depends on your investment stage and cash flow needs. Investors who need the property to cover its own costs prioritise yield. Those with strong income may accept lower yield in exchange for high-growth locations. The ideal scenario is a market with reasonable yield and genuine long-term demand drivers — but one typically comes at the expense of the other.
Calculate your property's yield
Use our Rental Yield Calculator to enter rent, price, vacancy, and expenses — and get an instant gross yield, net yield, and monthly cash flow breakdown.