2026
How to Calculate Returns on Your Investment Property
Calculating rental returns on an investment property is done by measuring the Rental Yield for ongoing income or the return on Investment (ROI) for total profitability.
You can calculate rental yield in either Gross or Net terms and then use these metrics to help understand if the property is performing well compared to alternative investments, as well as determine if it is positively or negatively geared.
The formula for calculating rental returns is:
Gross Yield = (Annual Rental Income / Property Value) x 100
Net Yield = (Annual Rental Income – Annual Expenses / Property Value) x 100
What is rental yield?
Rental yield refers to the annual return an investor makes on a property as a percentage of its market value or purchase price. It allows you to measure and compare the profitability of different real estate investments.
Calculating the Gross Rental Yield is a simple way to determine the income returned on the property, relative to its purchase price or current market value. However, it doesn’t factor in the expenses against the property. Net Rental Yield gives you a more accurate picture of the investment’s profitability by including annual expenditure like insurance, rates, council fees and maintenance.
What is considered a good rental yield?
A good rental yield generally falls between 4% and 6%; however, this range shifts depending on the property’s location and your investment strategy. Usually, a higher rental yield means better immediate cash flow, but it might come with lower long-term property value growth and tax implications.
On average, regional areas have a higher rental yield (5% to 7%) when compared to the major cities (3% to 4.5%). However, while the initial buy price in the capitals is significantly higher, they generally have stronger long-term growth. This higher capital growth can offset the greater rental yield achieved by property in regional areas.
Average rental yield in Australia by state/territory 2026
The average gross rental yield in Australia typically sits between 3.5% and 4.7% depending on where the property is and its type.
NSW: Sydney 3.0% | Regional NSW 4.0%
VIC: Melbourne 3.7% | Regional Vic 4.2%
QLD: Brisbane 3.3% | Regional Qld 4.1%
WA: Perth 3.8% | Regional WA 5.4%
SA: Adelaide 3.5% | Regional SA 4.4%
TAS: Hobart 4.3% | Regional Tas 4.5%
NT: Darwin 6.1% | Regional NT 8.1%
ACT: Canberra 4.1%
Sydney presents the lowest rental yield of the capital cities but also has much higher property values and capital growth. Brisbane and Perth sit roughly in the middle, but these markets have very low vacancy rates, meaning finding a tenant is quicker and easier. One of the strongest investor markets is Hobart, with higher rental yields, extremely low vacancy and also a relatively inexpensive real estate market for a major city.
Expenses that affect your rental yield %
The expenses that affect your rental yield include maintenance costs and repairs, insurance, management fees paid to real estate agents, council rates, strata or body corporate fees, vacancy costs and interest rates (Although these aren’t always included in a net yield calculation).
Management fees and strata levies are typically the greatest cost burden. Real estate agents charge for the ongoing management of the property, often around 5-8% commission, plus marketing costs to secure a tenant. They may also charge a ‘letting fee’ as a one-off for finding a tenant. Strata is a complex and highly varied cost that unit owners are subjected to. It can be as low as a few hundred dollars per quarter or run into the tens of thousands when a special levee is incurred for major repairs.
Another major cost that impacts rental yield is your property being vacant for an extended period. In areas where vacancy rates are high, there’s less competition for renters, so a property may sit empty for many weeks.
How does rental yield affect property gearing?
Rental yield affects property gearing in that it determines whether or not the income covers the outgoings against the investment. Gearing basically means using borrowed funds (a mortgage) to invest. The rental yield of your investment will determine the cashflow generated by that debt.
Negative gearing is when you have a low rental yield that falls short of mortgage and maintenance expenses. This results in tax-deductible losses funded by your personal income. Positive gearing occurs when a high rental yield covers loan and property servicing costs, thus creating passive income against which you pay tax. Neutral gearing, which is relatively uncommon, is when the income exactly equates to the cost of holding the property.
Is a high rental yield always a good thing?
High rental yield is generally considered a good thing, in that you are immediately making passive income from your investment, while in a healthy property market, it is also accumulating capital growth. You’re getting both short term and long-term benefits. However, there are tax implications that will see your profit eaten into as the surplus rental income is taxable at your normal marginal rates.
Another benefit of high rental yield is that lenders use this metric to determine loan serviceability (How easily you can make the required mortgage repayments). The higher the rental yield, the greater your borrowing capacity.
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