What Is Gross Yield vs Net Yield on an Investment Property?
Rental yield is the single most important return metric for investment property — but there are two versions of it, and confusing them is one of the most common mistakes Australian investors make. Here is the complete explanation of gross yield and net yield, how to calculate both, and which one actually matters.
What Is Gross Rental Yield?
Gross rental yield is the annual rent collected as a percentage of the property’s purchase price or current market value, before any costs are deducted.
Formula: Gross Yield = (Annual Rent / Property Value) x 100
Example: A property worth $700,000 renting for $550 per week generates $28,600 in annual rent.
Gross yield = ($28,600 / $700,000) x 100 = 4.09%
What Is Net Rental Yield?
Net rental yield deducts all ongoing property ownership costs from the annual rent before calculating the return. This gives a much more accurate picture of what the property actually earns after expenses.
Formula: Net Yield = ((Annual Rent – Annual Costs) / Property Value) x 100
Costs to deduct for net yield:
- Property management fees (typically 7 to 10% of rent)
- Council rates
- Water rates
- Landlord insurance
- Building insurance
- Maintenance and repairs (budget 0.5 to 1% of property value per year)
- Strata/body corporate fees (if applicable)
- Accounting fees
- Vacancy allowance (typically 1 to 3 weeks per year)
Example continued:
Annual costs = $8,500 (PM fees, rates, insurance, maintenance)
Net yield = (($28,600 – $8,500) / $700,000) x 100 = 2.87%
Gross Yield vs Net Yield Comparison Table
| Property | Value | Weekly Rent | Gross Yield | Annual Costs | Net Yield |
|---|---|---|---|---|---|
| Inner Melbourne apartment | $650,000 | $480 | 3.84% | $9,200 | 2.43% |
| Northcote house | $1,100,000 | $700 | 3.31% | $11,500 | 2.27% |
| Preston unit | $520,000 | $420 | 4.20% | $8,800 | 2.51% |
| Regional VIC house | $420,000 | $420 | 5.20% | $8,200 | 4.24% |
| Brisbane outer suburb | $550,000 | $520 | 4.92% | $9,400 | 4.04% |
Which Yield Metric Should I Use?
Use Gross Yield To:
- Quickly compare properties side by side before deep due diligence
- Assess whether a property is worth investigating further
- Compare suburbs and markets at a high level
Use Net Yield To:
- Make the final investment decision
- Calculate actual cash flow and gearing position
- Compare properties with significantly different cost structures (house vs apartment, strata vs freestanding)
- Assess whether the property is positively or negatively geared
What Is a Good Rental Yield in Australia?
| Market Type | Gross Yield | Net Yield |
|---|---|---|
| Inner Melbourne / Sydney | 2.5% to 4% | 1.5% to 2.5% |
| Middle-ring Melbourne / Sydney | 3.5% to 5% | 2% to 3.5% |
| Outer suburbs and regional VIC / NSW | 5% to 7% | 3.5% to 5.5% |
| High-yield regional towns | 7% to 10%+ | 5% to 8% |
Frequently Asked Questions
Which yield does REA and Domain show?
Property listing sites show gross yield only. Always calculate net yield yourself before making an investment decision — the gross-to-net gap is typically 1 to 1.5 percentage points for a standard residential property.
Does yield or capital growth matter more?
This depends on your investment strategy. Cash flow investors prioritise net yield above 5% to cover mortgage costs without topping up from salary. Growth investors accept lower yields (2 to 3%) in high-demand suburbs where long-term capital appreciation is expected to be the primary return driver. Most sophisticated portfolios target a mix of both.
Is gross yield before or after mortgage costs?
Both gross and net yield are calculated before mortgage interest costs. To calculate true cash-on-cash return including mortgage, subtract annual interest from net income and divide by your equity (deposit). This is the most accurate measure of how your invested cash is performing.
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