Calculate your rental yield

Thinking of investing in property? Wondering if it’s a good investment? If so, you’ll want to work out the potential return you might get from it. To do that, you need to calculate what the possible rental yield is.

In this article we’re going to explore what rental yield is, how to calculate gross and net rental yields, what classifies as a ‘good’ rental yield and why these figures matter to your investment decisions.

What’s rental yield?

Rental yield is a simple metric that compares the potential annual rental income of an investment property to its market value, helping you measure profitability. Rental yields are given as a percentage and can be worked out as gross or net. Let’s look at the difference between the two with some examples.
 

1. Gross Rental Yield

Gross rental yield is a simple way to see how much rent you could get each year compared to the property’s price.
 

Gross rental yield example:

• Carla has purchased an investment property for $600,000
• She rents it out at $450 per week
• The gross rental yield is the annual rental income ($450 x 52) = $23,400 / $600,000 x 100 = 3.9%

So, the gross rental yield is 3.9%.

While gross rental yield can be a good way to work out a property’s general investment potential, it may not give you a totally accurate idea of your outgoings. 

2. Net Rental Yield

Net rental yield is more detailed. It looks at all the costs you have to pay for the property. After subtracting these costs from the rent you get, you can see how much money you would potentially make.

When calculating the net rental yield, it’s a good idea to factor in:

• Insurance
• Strata fees
• Vacancy costs
• Repair costs
• Legal fees
• Building inspection fees
• Maintenance fees
• Agent fees
   

To calculate the net rental yield, you take the same formula as the gross rental yield, minus your anticipated expenses. Here’s an example of how to work it out.

Net rental yield example: 

• Carla’s net rental yield is calculated by subtracting her property costs from his rental income
• $23,400 ($450 x 52) -$4920/ $600,000 = 0.031 x 100 = 3.1%

So, the net rental yield is 3.1%.
 

Whether you’re calculating the gross or net figures, understanding rental yield is important for property investors as it can help determine not only what the ongoing return may be on your potential investment but also whether it will work with your overall investment goals. Keeping track of your rental yield could also be beneficial for annual rental reviews on your property. 

What’s a good rental yield?

What’s considered a good rental yield depends on where the property is and what’s happening in the market. Generally, a gross rental yield of 5% or more is seen as good. For net rental yield, anything above 3-4% is usually okay, considering all the costs.
 

Where has the best rental yield?

How do you find the properties with the highest rental yield? Well you have to do the research.

Many factors can impact rental yield. For example, units, in general, tend to offer higher rental returns than detached houses. This is because the initial investment, how much it costs to buy, is lower but rental return can still be high, so increasing the yield.

Thankfully, there’s free online tools, like our Property Market Research tool, that can help investors understand the latest data on suburbs and properties around the country.

Information about expected rental income, rental yield, as well as suburb price trends and demographics all go a long way towards helping you find an investment property that works for you.
 

Interested in investing?

The opportunity to grow your wealth through property investment can be appealing. There are few things to consider however, and that’s where we come in.

For more information on how to start or further your property investment journey, book a time and we’ll get back to you in one working day.