How to calculate rental yield
If you’re thinking of buying an investment property, you’ll want to know what your return on investment could look like.
This is where calculating rental yield can come in handy.
What is rental yield?
At its core, rental yield is the income you receive from your property (rental income) minus the costs associated with owning it (e.g. maintenance, repairs, property management fees).
In other words, it’s your profit.
Rental yield is expressed as a percentage. Like with other investments, the higher the number, the better your rental yield is.
Why calculate rental yield?
There are plenty of reasons why you should calculate your rental yield, including:
- To compare returns on different properties
- To determine whether the investment is right for you
- To review how much rent you charge your tenants
- To measure the performance of your property over time.
Calculating rental yield
There are two ways to calculate rental yield: gross or net yield.
Gross rental yield is a snapshot of how much rental income you earn before expenses are considered.
Net rental yield takes into account your property expenses and requires a bit more number-crunching, but it paints a more accurate picture.
How to calculate gross rental yield
Gross rental yield formula
Gross rental yield = (annual rental income ÷ property value) x 100
- Find your annual rental income by multiplying your weekly rental income by 52
- Divide your annual rental income by the property’s value
- Multiply that number by 100 to get the gross rental yield as a percentage.
To calculate gross rental yield, take your annual rental income, divide it by the property’s value, and multiply it by 100 to get a percentage.
For example, if you purchase a property worth $750,000 and receive a rental income of $35,000 per year, your gross rental yield would be 4.67%.
How to calculate net rental yield
Net rental yield formula
Net rental yield = (annual rental income - annual expenses) ÷ (property value) x 100
- Find your annual rental income by multiplying your weekly rental income by 52
- Add together all of your property expenses (e.g. management and maintenance costs, strata fees, home insurance, property taxes)
- Subtract your property expenses from your annual rental income to get your net income
- Divide your net income by the property’s value
- Multiply that number by 100 to get the net rental yield as a percentage.
For example, if you purchase a $750,000 property and receive an annual rental income of $35,000, but you have $5,000 worth of expenses, your net rental yield would be 4%.
Factoring in your property ownership expenses gives you a more accurate estimate of your rental yield. But what counts as a property expense?
Property expenses
- Repair and maintenance costs
- Property management fees
- Council rates
- Home insurance
- Depreciation
- Strata fees
- Vacancy costs
- Building inspection fees.
Often, you won’t include your investment home loan repayments as part of this calculation.
What is a good rental yield?
The answer to that is subjective. Usually though, the higher your rental yield is, the better. After all, it can mean more cash in your pocket.
That being said, there are cases where a rental yield being ‘too high’ could indicate that the property is undervalued, or ‘too low’ if it’s overvalued. So, keep that in mind when you crunch the numbers.
Ultimately, a ‘good’ rental yield will align with your investment strategy and goals.
You’ll also want an investment home loan with a competitive rate and useful features in your corner. A lower rate could mean you pay less interest over the life of the loan, which could otherwise eat into your rental income and tank your rental yield.
Whether you’re refinancing or buying a new property, compare investment home loans below, or check out our investing guides for more ways to get a better return on your investment.
Home loan comparisons on Mozo - last updated 2 May 2024
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Featured Product
Mozo experts choice awards won:
- Low Cost Home Loan - 2024
Unloan Variable
Investment, LVR <80%
interest rate
comparison rate
Initial monthly repayment6.29% p.a. variable6.20% p.a.Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
CompareCompareUnloan Variable
Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.
- interest rate
- 6.29% p.a. variable
- comparison rate
- 6.20% p.a.
- variable rate
- 6.29% p.a.
- comparison rate
- 6.20% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $10,000
- maximum borrowing amount
- $10,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Investor
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Unloan Unloan Variable
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SMSF Home Loan
LVR <70%
interest rate
comparison rate
Initial monthly repayment6.99% p.a. variable7.00% p.a.Enjoy a competitive rate on your SMSF home loan with Loans.com.au. Available for refinancers only. No application fee and no settlement fee. No monthly, annual or ongoing fees. Unlimited extra repayments. Online access via Smart Money App. 30% deposit required.
CompareCompareSMSF Home Loan
Enjoy a competitive rate on your SMSF home loan with Loans.com.au. Available for refinancers only. No application fee and no settlement fee. No monthly, annual or ongoing fees. Unlimited extra repayments. Online access via Smart Money App. 30% deposit required.
- interest rate
- 6.99% p.a. variable
- comparison rate
- 7.00% p.a.
- variable rate
- 6.99% p.a.
- comparison rate
- 7.00% p.a.
- Upfront fees
- $720
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 70.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Investor
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the loans.com.au SMSF Home Loan
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Back to Basics Special
LVR<60%, Investment, Principal & Interest
interest rate
comparison rate
Initial monthly repayment6.43% p.a. variable6.44% p.a.Competitive variable for investors with no monthly account keeping or ongoing annual fees. Unlimited additional repayments & option to redraw additional repayments as cashback.
CompareCompareBack to Basics Special
Competitive variable for investors with no monthly account keeping or ongoing annual fees. Unlimited additional repayments & option to redraw additional repayments as cashback.
- interest rate
- 6.43% p.a. variable
- comparison rate
- 6.44% p.a.
- variable rate
- 6.43% p.a.
- comparison rate
- 6.44% p.a.
- Upfront fees
- $0
- Ongoing fees
- $0.00
- Discharge Fee
- $350.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- -
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Investor
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $0 establishment fee on lending >$150,000
Read our Mozo Review to learn more about the Suncorp Back to Basics Special
Your selected home loans
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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
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