Gross yield is annual rent over the property value. Net yield subtracts vacancy and running costs, and it is the number worth comparing.
The gap between them is routinely a third or more, which is why a property quoted at a 5% yield is rarely returning 5%.
Works out gross and net rental yield on an investment property, allowing for vacancy and operating costs.
Vacancy weeks
How many weeks a year you expect the property to be empty. Two is a common planning assumption for a well-located property; assuming zero is the most frequent error in a yield calculation.
Annual expenses
Council rates, water, insurance, strata levies, property management fees, and maintenance. On an apartment, strata alone can be several thousand dollars a year.
Purchase costs
Duty and acquisition costs. Including these gives a yield on what the property actually cost you rather than on its price, which is the more honest denominator.
Gross yield is the advertised figure. It ignores every cost of ownership and assumes the property is never vacant.
Net yield is rent after vacancy, less running costs, over what the property cost including acquisition. It is materially lower and it is what you can actually compare against a term deposit or another investment.
Neither figure includes the loan. A property with a positive net yield can still cost you money every month once the mortgage is paid — that comparison is what the negative gearing calculator is for.
Every figure below is computed by the same calculator on this page, from the inputs described. Nothing here is typed in by hand, so an example cannot disagree with the tool.
Compare gross against net. Strata levies and two weeks of vacancy account for most of the difference, and both are ordinary rather than pessimistic.
Lower gross yield than the apartment, but no strata. Houses commonly show a weaker yield and stronger land value, which is the standard trade-off in Australian residential investment.
Annual rent is the weekly rent multiplied by the weeks actually let, which is fifty-two less the vacancy weeks.
Gross yield is annual rent over the property value. Net yield is annual rent less expenses, over the property value plus purchase costs.
Including purchase costs in the net denominator is deliberate: yield on the price flatters a property, and duty on an Australian purchase is a large enough number to change the answer.
Rent does not change during the year
A single weekly figure is applied to the weeks let. Real rents change at renewal and between tenancies.
Capital growth is excluded
Yield is income return only. Total return is yield plus capital growth, and Australian residential property has historically delivered more of its return through the second than the first.
It is not an after-tax return
Rent is assessable income and most expenses are deductible, so your after-tax position differs from the net yield. The negative gearing calculator models that.
Depreciation is not included
Capital works and plant depreciation are non-cash deductions that can significantly improve after-tax returns on a newer property. A quantity surveyor’s schedule is the usual source.
Works out what an investment property costs after tax, by comparing tax on your income with and without the property’s rental loss.
Adds transfer duty to your deposit and the other upfront costs, to show the cash you need to complete a purchase.
Works out gross equity in a property, and how much could be released while staying within a loan-to-value ratio you choose.
Shows the repayment during an interest-only period, the higher repayment once it ends, and the extra interest it costs over the loan.
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