How Rental Yield Is Calculated in Australia

Summary

Rental yield measures the annual return from renting out an Australian investment property, expressed as a percentage of the property value. National gross rental yields average around 3.5-4.5% (CoreLogic, 2025-26), with regional areas and units generally outperforming houses in capital cities. Net yield deducts all running costs to show the true return.

How it works

Gross Yield (%) = (Annual Rent / Property Price) x 100

Net Yield (%) = ((Annual Rent - Total Annual Costs) / Property Price) x 100

Running costs for Australian investment properties

• Property management fees: 5-10% of rental income (lower in capital cities, higher in regional areas)
• Council rates: A$1,200-A$3,000/year depending on the local government area
• Strata levies: A$2,000-A$8,000/year for apartments and townhouses (covers building insurance, common area maintenance, sinking fund)
• Landlord insurance: A$1,000-A$2,000/year (covers building, contents if furnished, landlord liability, loss of rent)
• Maintenance: Rule of thumb is 1% of property value per year
• Water charges: Landlords typically pay supply charges (A$200-A$400/year); tenants pay usage
• Vacancy: Average vacancy rates range from 1-3% nationally, translating to 0.5-1.5 weeks lost per year

Negative gearing

Australia allows investors to deduct rental property losses (where costs exceed income) against their other taxable income. If an investor earns A$120,000 salary income and makes an A$8,000 net rental loss, they pay tax on A$112,000. This tax benefit effectively subsidises the holding cost, making negatively geared properties attractive when capital growth is expected.

Capital Gains Tax (CGT)

When an investment property is sold after being held for more than 12 months, only 50% of the capital gain is added to taxable income (the “CGT discount”). This makes long-term property investment particularly tax-effective.

Worked example

A$750,000 apartment in Melbourne, rented at A$550/week:

1. Annual rent: A$550 x 52 = A$28,600
2. Gross yield: (A$28,600 / A$750,000) x 100 = 3.81%
3. Annual costs: Management A$2,288 (8%) + council rates A$1,800 + strata A$4,500 + insurance A$1,500 + maintenance A$3,000 + water A$300 + vacancy 1 week A$550 = A$13,938
4. Net rental income: A$28,600 - A$13,938 = A$14,662
5. Net yield: (A$14,662 / A$750,000) x 100 = 1.95%
6. If mortgage interest is A$25,000/year: Net position = A$14,662 - A$25,000 = -A$10,338 (negatively geared). At a 37% marginal tax rate, the tax deduction saves A$3,825/year.

Key differences from other markets

• Negative gearing is a defining feature of Australian property investment, allowing rental losses to offset salary income — the UK restricts mortgage interest deductions to a 20% tax credit, and the US limits passive loss deductions.
• The 50% CGT discount for assets held over 12 months makes Australian property investment more tax-effective on sale than in the UK (where CGT applies to the full gain at 18%/24%) or the US (where long-term capital gains are taxed at 0%/15%/20%).