How to Calculate Rental Yield
Understanding gross and net rental returns before investing
Rental yield is one way property investors measure the income a property generates compared with its purchase price or value. Expressed as a percentage, it helps investors compare properties and assess their potential rental returns.
However, understanding the difference between gross and net rental yield is important, as the rent collected does not necessarily represent the income an investor keeps.
What Is Gross Rental Yield?
Gross rental yield measures annual rental income before expenses.
The calculation is straightforward:
Gross Rental Yield = (Annual Rent ÷ Property Price) × 100
For example, consider a property purchased for $1,000,000 and rented for $850 per week.
Purchase Price: $1,000,000
Weekly Rent: $850
Annual Rental Income: $850 × 52 = $44,200
Gross Rental Yield:
4.42%
($44,200 ÷ $1,000,000) × 100
This means the property's annual rental income represents 4.42% of its purchase price before accounting for ownership expenses, financing costs or tax.
Why Net Rental Yield Matters
Gross yield does not account for the costs of owning an investment property.
Net rental yield provides a more realistic picture by deducting operating expenses such as:
- ● Property management fees: The cost of managing tenants and rent collection.
- ● Maintenance and repairs: Ongoing property upkeep.
- ● Rates, insurance and strata fees: Where applicable.
- ● Vacancy periods: Times when the property is not generating rental income.
Net rental yield is calculated by dividing annual rental income after operating expenses by the property's purchase price or value, then multiplying by 100.
Financing costs and tax are generally assessed separately when evaluating overall investment returns.
Is a Higher Rental Yield Always Better?
Not necessarily. A property offering a higher rental yield may also involve greater maintenance costs, vacancy risk or lower potential capital growth.
Investors should consider rental demand, property condition, operating expenses and long-term investment objectives alongside the yield percentage.
Rental yield is a useful starting point, but understanding the actual costs and risks of ownership is essential when assessing an investment property.
Disclaimer: This article provides general educational information, not financial or investment advice. Rental returns are estimates and may vary. Seek independent professional advice before making investment decisions.
Posted 23rd June, 2026