Gross vs Net Rental Yield: Why Investors Get the Number Wrong

Gross yield is the easy number

Gross rental yield is simple:

Annual rent divided by property value, multiplied by 100.

That makes it useful for scanning listings. It is also why it can mislead investors.

Gross yield ignores the costs that actually decide whether a property works.

Net yield is closer to reality

Net rental yield deducts the recurring costs of holding the property before calculating the return.

Common costs include:

• Council rates.
• Water rates.
• Strata or body corporate fees.
• Insurance.
• Property management.
• Repairs.
• Maintenance allowance.
• Land tax.
• Vacancy allowance.

Some investors also include accounting fees, letting fees and safety compliance costs.

Example

Assume a unit costs $650,000 and rents for $600 per week.

Annual rent is $31,200. Gross yield is 4.8%.

Now deduct:

• Strata: $5,000.
• Council and water: $2,500.
• Insurance: $700.
• Management fees: $2,000.
• Maintenance allowance: $1,500.
• Vacancy allowance: $1,200.

Net income before loan interest is $18,300.

Net yield is 2.8%.

That is a very different investment.

Why land tax matters

Land tax can turn a good-looking yield into an average one, especially in Victoria or where an investor owns multiple properties.

Because land tax is based on land value and owner type, it does not show up in rental ads or basic yield calculators.

Use the Land Tax Calculator before relying on a net yield estimate.

Bottom line

Gross yield is a screening tool. Net yield is the number you should use before buying.

If the deal only looks good before costs, it is not a good deal yet.

Use the Investment Property Yield Calculator to compare gross and net yield, then test tax impact with the Negative Gearing Calculator.

Sources: ATO rental property expenses guidance and state revenue office land tax guidance. This article is general information, not financial or tax advice.