What is rental yield in property investment? - NAB

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What is rental yield?

It's a percentage that compares the rental income from an investment property with the property’s value.

There are two common types:

  • Gross rental yield, which looks at rental income before expenses.
  • Net rental yield, which factors in ongoing property costs.
  • A higher yield may support stronger rental income, but it doesn’t automatically mean a property is the right investment.
  • Investors often compare this with cash flow, expenses, location and long-term growth potential before deciding.

How is rental yield calculated?

It is usually calculated as a percentage.

Gross rental yield

It compares your annual rental income with the property’s value, before expenses are deducted.

Example to calculate

Gross rental yield equals annual rent divided by property value, multiplied by 100

For example, if a property is valued at $500,000 and earns $25,000 in rent each year,

$25,000 ÷ $500,000 × 100 = 5%

This means the gross rental yield is 5%.

This can be useful for a quick comparison between properties, but it doesn’t show the impact of ongoing costs.

Net rental yield

You get a more detailed view because it factors in annual property expenses, such as council rates, insurance, repairs, maintenance and property management fees.

Example to calculate

Net rental yield equals annual rental income minus annual expenses, divided by the property value, multiplied by 100.

For example, if a property earns $25,000 in rent each year and has $5,000 in annual expenses:

($25,000 – $5,000) ÷ $500,000 × 100 = 4%

This means the net rental yield is 4%.

This may give you a more realistic view of the income a property could generate after regular costs are considered.

What rental yield can tell you

It can help you estimate how much income a property may generate compared with its value. This can be useful when you’re comparing different investment properties or reviewing whether the rent may help cover ongoing costs.

For example, you'll be able to:

  • compare the income potential of two properties
  • understand the difference between rental income and ongoing expenses
  • assess whether a property may support your cash flow goals
  • think about how the property fits into your broader investment plans.

Rental yield is most useful when it’s considered alongside other information.

What rental yield doesn’t show

It doesn’t tell you whether a property will increase in value, whether tenants will stay long term, or whether unexpected costs could affect your return. It also doesn’t include every factor that may influence your investment, such as interest rate changes, tax considerations or changes in the local rental market.

This is why many investors use rental yield as one part of their research, rather than the only measure they rely on.

Scenario: When cashflow becomes more important

Tax rules, market conditions and investment settings can change over time. When this happens, some investors may pay closer attention to whether a property’s rental income can help support its ongoing costs.

For example, if tax benefits are reduced or become less available for some types of properties, an investor may place more focus on the property’s rental income, expenses and cash flow position. That can make rental yield and cash flow more important when comparing established properties or weighing up different investment approaches.

This doesn’t mean rental yield should be considered in isolation. A property’s location, condition, tenant demand, loan repayments, potential growth and ongoing costs still matter. But it does show why many investors look at income resilience as part of their decision-making.

If you’re unsure how tax rules may apply to your situation, consider speaking with a registered tax professional.

What can affect rental yield?

Property type

Different property types can produce different rental yields.

  • Apartments and units may have higher yields in some areas because they can cost less to buy while still attracting steady rental demand.
  • They may also come with additional costs, such as owners corporation or strata fees.
  • Houses may have lower yields in some markets because they can cost more to buy and maintain.
  • They may appeal to investors who are also thinking about land value, renovation potential or long-term capital growth.

The right option depends on your goals, budget and the type of investment property you’re considering.

Location

Location can have a significant impact on rental yield.

  • In some major metropolitan areas, property prices may be higher, which can reduce rental yield if rent doesn’t rise at the same pace.
  • In some regional areas, lower property prices and steady rental demand may support stronger yields.
  • Tenant demand, vacancy rates and future growth potential can vary by market.
  • Nearby amenities, employment hubs, transport links and future development plans may also influence rental demand.

It’s worth looking at the local rental market before relying on yield alone.

Ongoing costs

Ongoing costs can reduce the income you keep from an investment property.

  • Council rates
  • Insurance
  • Repairs and maintenance
  • Property management fees
  • Owners corporation or strata fees
  • Periods where the property is vacant

This is why net rental yield can be helpful. It gives you a clearer view of how expenses may affect the income from the property.

Is higher yield better?

A higher yield can be appealing because it may suggest stronger rental income compared with the property’s value. But a higher yield doesn’t always mean a better investment.

Some high-yielding properties may come with trade-offs, such as higher vacancy risk, lower growth potential, more maintenance, or a location where demand changes more quickly. A lower-yielding property may still suit some investors if it has other features they value, such as location, long-term growth potential or lower ongoing costs.

Instead of looking for one “good” number, it can help to ask:

  • Is the rent realistic for the local market?
  • What are the likely ongoing expenses?
  • Could vacancy periods affect the income?
  • Does the property suit your investment goals?
  • How does the yield compare with similar properties in the area?

Rental yield is most useful when it helps you compare options in context.

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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.