What is rental yield?

Rental yield is a simple way to measure how much money you’re making from an investment property compared to its value. The calculation factors in the money you receive from renting the property minus costs like repairs, maintenance, and depreciation. It’s usually shown as a percentage, and helps investors understand if a property is a good investment or not.

When you’re thinking of buying an investment property, there are two main types of rental yield you’ll hear about: gross rental yield and net rental yield.

Gross rental yield

Gross rental yield looks at your property’s yearly rental income, before any costs, divided by the property’s value. It doesn’t consider things like maintenance, insurance, or property management fees.

Example to calculate gross rental yield

Imagine you own a rental property worth $500,000. Each year, you make $25,000 in rent.

To figure out the gross rental yield, you’d use:

Gross rental yield = (Annual rent ÷ Property value) × 100

Gross rental yield = ($25,000 ÷ $500,000) × 100 = 5%

That’s your gross rental yield before any expenses.

Net rental yield

Net rental yield digs a bit deeper. It subtracts your ongoing expenses (like repairs, council rates, and other costs) from your rental income before dividing by the property’s value. This gives you a clearer picture of your actual profit.

Example to calculate net rental yield

Now, let’s say your yearly expenses, including repairs, council rates, and insurance, add up to $5,000. To work out your net rental yield:

Net rental yield = [(Annual rent – Annual expenses) ÷ Property value] × 100

Net rental yield = [($25,000 – $5,000) ÷ $500,000] × 100 = 4%

This net yield gives a more realistic view of how much you actually take home after costs.

Does property type affect rental yield?

Yes, the type of property you invest in can make a real difference to your rental yield. Let’s compare two popular property types.

Apartments

Apartments or units tend to have higher rental yields than houses because they’re often less expensive to buy, have lower upkeep costs and can attract solid rental income, especially in areas with high demand from tenants. On the flipside they have ongoing expenses like body corporate fees and property management costs.

Houses

Houses may deliver lower yields, because they require more maintenance and tend be more expensive than apartments. But they can offer more potential for long-term capital growth, especially in established or sought-after suburbs. Additionally, houses can give investors more flexibility with renovations or extensions, possibly increasing both value and rental income over time.

Both houses and apartments can be smart investments. It’s important to weigh up your goals and consider what matters most to you – steady cash flow or the chance for your property’s value to rise over time.

How location impacts rental yield: metro vs regional

In major metro markets like Sydney, Melbourne or Brisbane, property prices tend to be higher and rental yields lower, favouring investors seeking long-term growth. Regional towns, with lower purchase costs and solid rents may offer higher yields and better cash flow, though tenant demand and growth may be less predictable. It’s worth noting that these trends aren’t set in stone; rental yield can fluctuate depending on a variety of factors unique to each property and market.

Good rental yield vs bad rental yield

You’ll often hear people talk about ‘good’ and ‘bad’ rental yields, but it’s really about what aligns with your goals. Generally, a higher yield means you’re making more from rent compared to the property’s price, but these figures can vary a lot depending on the area and the type of place you buy. There’s no magic number, just rough ranges that help you get a feel for what’s typical. 

For example, if a rental yield falls below 4%, it could indicate the property is overvalued. On the other hand, a rental yield above 5.5%, when the rent seems reasonable and sustainable, might suggest the property is undervalued. These figures are just examples. Ultimately, it’s about striking a balance that matches your strategy and comfort level.

Does rental yield matter?

For anyone investing in property, it’s a key number because it highlights how much income you can expect from your investment. A higher rental yield usually means better returns, but it’s also important to factor things like location, property type and long-term goals into your investment strategy. To research the best rental yield suburbs, use our property insights tool for full property reports, including estimated values, yield and other insights. If you’re ready to get started with your investment property journey our home loan experts can help.

Ready to purchase your investment property?

Speak to our home loan experts and get started on your investment property buying journey.

Talk to an expert

Explore other property investment guides

Negative gearing vs. positive gearing

The difference between positive cash flow and negative gearing.

Choosing between an investment property or first home

Use our detailed guide to understand how to choose between buying an investment property and your first home.

Using your home’s equity to invest

Learn what is equity and how you can use it for a new investment property purchase.

Related products and services

Loan options for investing in property

Explore property investor rates and tools to build, manage and grow your investment property portfolio.

Equity loan calculator

Evaluate your home’s equity and see how you could make it work for you.

How much can I borrow?

Get an estimate of how much you can afford to borrow for your home.

Contact us for home loan related queries

This is how you can get in touch.

Start a conversation with a banker

  1. Log into either NAB Internet Banking or the NAB app.
  2. Tap on the message icon.
  3. Type ‘speak to a person’ in the conversation window.

Call us

Speak to a home loan expert about a new or existing home loan.

Monday to Friday, 8:00am to 7:00pm (AEST/AEDT)
Saturday to Sunday, 9:00am to 6:00pm (AEST/AEDT)

13 78 79

Book an appointment

Make an appointment to see us at your nearest branch, ask a mobile banker to come to you or ask us to call you back.

Talk to an expert

Terms and Conditions

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.

Target Market Determinations for these products are available at nab.com.au/TMD.