Rental yield is the most fundamental metric for evaluating investment properties. It tells you what return the property generates relative to its cost. Yet it’s consistently miscalculated by investors who either oversimplify the formula or use optimistic inputs.

Getting yield calculations right isn’t difficult, but it requires including the right costs and using realistic assumptions. Here are the formulas and the thinking behind them.

Gross Rental Yield

The simplest calculation and the one you’ll see in most property marketing.

Formula: (Annual Rental Income / Property Purchase Price) x 100

Example: A property purchased for $600,000 renting at $550 per week.

Annual rent: $550 x 52 = $28,600 Gross yield: ($28,600 / $600,000) x 100 = 4.77%

This formula is easy to calculate but meaningfully misleading. It ignores all ownership costs and presents a return figure that’s significantly higher than what you actually receive.

When it’s useful: For quick comparisons between properties before doing detailed analysis. If two properties have similar gross yields, the one with lower holding costs will have the better net yield. But you can’t determine holding costs from gross yield alone.

Net Rental Yield

The more honest calculation that accounts for the costs of owning the property.

Formula: ((Annual Rental Income - Annual Expenses) / Total Acquisition Cost) x 100

Note two important differences from gross yield. First, expenses are deducted from income. Second, the denominator should include total acquisition cost, not just the purchase price.

What to Include in Annual Expenses

Council rates: $1,500-3,000 annually for most metropolitan properties. Check the specific council for exact figures—they vary significantly.

Strata levies (apartments/townhouses): $3,000-8,000+ depending on building age, size, and amenities. Older buildings with lifts and pools tend to have higher levies. New buildings sometimes have artificially low levies that increase once the developer hands over to the owners corporation.

Water rates: $700-1,200 annually. Tenants typically pay usage charges, but the owner pays fixed service charges.

Insurance: Landlord insurance covering building, contents, and landlord-specific risks (rent default, malicious damage). Budget $1,200-2,500 depending on property value and coverage level.

Property management fees: Typically 7-10% of gross rent plus GST, plus letting fees (usually one to two weeks’ rent per new tenancy). On a $550/week rental, expect $2,200-3,200 annually in management fees.

Maintenance and repairs: Budget 1-2% of property value annually as an average. Some years you’ll spend nothing. Other years a hot water system or roof repair will cost thousands. The average over time is what matters.

Vacancy allowance: No property is rented 52 weeks per year, every year. Budget for 2-4 weeks of vacancy annually, depending on the rental market. In tight markets it might be less; in soft markets it could be more.

What to Include in Total Acquisition Cost

Purchase price is obvious. But also include:

Stamp duty: Varies by state and property value. In Victoria, stamp duty on a $600,000 investment property is approximately $31,000. In NSW, approximately $22,000. This is a real cost that reduces your return.

Legal/conveyancing fees: $1,500-3,000 typically.

Building and pest inspection: $500-800.

Loan establishment costs: Application fees, valuation fees, lender’s mortgage insurance if applicable.

Worked Example

Same property: $600,000 purchase price, $550/week rent.

Annual expenses:

• Council rates: $2,200
• Water rates: $900
• Insurance: $1,800
• Management fees (8.5% + GST): $2,860
• Maintenance allowance: $6,000 (1% of value)
• Vacancy (2 weeks): $1,100
• Total expenses: $14,860

Total acquisition cost:

• Purchase price: $600,000
• Stamp duty: $31,000
• Legal: $2,000
• Inspections: $700
• Total: $633,700

Net yield: (($28,600 - $14,860) / $633,700) x 100 = 2.17%

Compare that to the 4.77% gross yield. The difference—2.6 percentage points—represents the real costs that marketing materials conveniently omit.

Cash-on-Cash Return

This metric measures return on the actual cash you’ve invested, not the total property value. It’s particularly relevant for leveraged purchases.

Formula: (Annual Net Income / Total Cash Invested) x 100

If you purchased the $600,000 property with a 20% deposit:

Cash invested:

• Deposit: $120,000
• Stamp duty: $31,000
• Legal and inspections: $2,700
• Total cash: $153,700

Annual net income after mortgage:

• Net rent (from above): $13,740
• Annual mortgage payments (5.5%, $480,000 loan, interest only): $26,400
• Net income: -$12,660 (negative—you’re putting money in)

Cash-on-cash return: -8.2%

This is the reality of many investment properties at current interest rates. The investment loses cash annually, with the expectation that capital growth will more than compensate. Whether that’s a reasonable expectation depends on your growth assumptions and holding period.

Comparing Yield Across Markets

Gross yields vary significantly across Australian capital cities. As of early 2026:

• Brisbane houses: approximately 3.8-4.3% gross
• Sydney houses: approximately 2.5-3.2% gross
• Melbourne houses: approximately 3.0-3.5% gross
• Perth houses: approximately 4.0-4.8% gross
• Adelaide houses: approximately 3.8-4.5% gross

These are broad ranges. Individual suburb yields can be significantly higher or lower. Units generally offer higher yields than houses but lower capital growth expectations.

When comparing across markets, always use net yield rather than gross. Different states have different stamp duty structures, insurance costs vary by region, and management fee percentages differ. A property with a higher gross yield might have a lower net yield once local costs are factored in.

Common Mistakes

Using asking rent, not achieved rent. Listed rental prices are aspirational. Check actual rental evidence from comparable properties on SQM Research or from the managing agent. Overestimating rent by $30/week adds $1,560 to your income calculation—enough to meaningfully distort yield.

Ignoring vacancy. Zero vacancy assumptions are unrealistic. Even in tight markets, tenant turnover creates some vacancy. Between tenancies, there’s typically a few days minimum for cleaning, repairs, and inspections.

Underestimating maintenance. New properties need less maintenance initially, but this creates a false sense of ongoing costs. The 1-2% annual allowance averages out the years of minimal spending with the years where major items need replacement.

Comparing gross yield to term deposit rates. An agent telling you that a 4.5% gross yield “beats term deposits at 4%” is comparing different things. The term deposit rate is net—you actually receive 4%. The property’s gross yield will be closer to 2% net after all costs.

Excluding stamp duty from acquisition cost. Stamp duty on a $600,000 property is $22,000-31,000 depending on state. That’s real money that reduces your return. Including it in the denominator of your yield calculation gives you a more accurate picture of what your investment actually returns.

The Bottom Line

Rental yield calculations are arithmetic—they’re not complicated. The challenge is being honest about the inputs. Optimistic rental estimates, understated expenses, and excluded acquisition costs produce yield figures that look attractive on paper but don’t survive contact with reality.

Run the numbers conservatively. If the investment still makes sense with realistic inputs, it’s probably a sound decision. If it only works with optimistic assumptions, you’re taking more risk than you might realise.