Gross rental yield and net rental yield are both measures of an investment property’s income performance, but they tell different stories. Understanding the difference is essential for comparing investment opportunities accurately.
Gross rental yield. Gross yield is the property’s annual rental income expressed as a percentage of its value, before deducting any costs. It is a quick, high-level comparison metric.
Formula: (Weekly Rent × 52 / Property Value) × 100
Example: A $650,000 property renting at $580 per week = (580 × 52 / 650,000) × 100 = 4.64% gross yield.
Net rental yield. Net yield deducts all holding costs from annual rent before calculating the yield percentage. Costs typically included: property management fees (7–10% of rent), council rates, landlord insurance, maintenance allowance, and vacancy allowance.
Example using the same property, assuming $8,500 in annual costs: ((580 × 52 − 8,500) / 650,000) × 100 = 3.33% net yield.
Why the difference matters. A property advertised with a 6% gross yield may deliver only 4–4.5% net yield after costs. In high-cost markets or properties with high body corporate fees, the gap between gross and net yield can be substantial.
Benchmark. Net yield above 3.5% in a capital city is generally considered positive for cash flow purposes (especially with an interest-only investment loan). Net yield below 2.5% typically implies meaningful negative cash flow.
