What is a Good Rental Yield in Australia?

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Rental yield is one of the best metrics you can use to predict profitability on an investment property. By helping you better understand your annual portfolio returns, rental yield allows you to make more informed investment decisions.

But to make those decisions, you also need to know what constitutes a healthy rental yield. Is there a magic number that you should be shooting for when eyeing up a new property investment? What is a good rental yield in Australia? And how do you calculate rental yield?

The answer to these questions are very context-dependent and will likely change depending on your financial goals. Below, we explore rental yields across different parts of Australia and explain what kind of rental yield figure you should aim for on your next property investment.

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What is Rental Yield?

Rental yield is the annual rental income you make on a property in proportion to its value. It’s always expressed as a percentage and helps predict likely annual returns on a buy-to-let property.

There are two types of rental yield:

  • Gross rental yield
  • Net rental yield

Gross Rental Yield

Gross rental yield shows you what you earn on a rental property before any expenses are deducted. Expenses include things like maintenance costs, strata levies, council rates and property management fees, as well as one-off payments such as stamp duty and any legal fees.

These costs quickly add up, but gross rental yield doesn’t take them into account, leaving you with only a limited view of your returns. You can work out the gross rental yield of a property using the following equation:

Gross Rental Yield = (Annual Rental Income / Property Value or Purchase Price) x 100

What Is A Good Gross Rental Yield?

A good gross rental yield typically ranges from:

  • 5% to 8% for residential properties in many markets
  • 6% to 10% for commercial properties

Higher yields (above 8% for residential, above 10% for commercial) are often considered attractive, but they may also indicate higher risks or potential issues with the property or location.

Net Rental Yield

Net rental yield calculates your annual income on a property after expenses have been deducted. This metric gives a clear picture of your cash flow and is the preferred method for forecasting profitability on an investment property.

You can find the net rental yield of a property using the equation below:

Net Rental Yield = [(Annual Rental Income – Annual Expenses) / Property Value or Purchase Price] x 100

We’ve explained how to calculate both the gross rental yield and net rental yield of a property in greater detail in a separate blog post, which you can find here.

What is a Good Net Rental Yield?

A good net rental yield typically ranges from:

  • 3% to 6% for residential properties in many markets
  • 4% to 8% for commercial properties

Again, higher yields (above 6% for residential, above 8% for commercial) can be considered attractive, but they may also indicate higher risks or potential issues with the property or location.

What is a Good Rental Yield in Australia?

Most financial advisers say the 5-8% range generally represents a good rental yield in Australia, but the truth is there’s no industry standard for measuring an effective rental yield. Generally, the higher the rental yield, the greater the returns.

However, this isn’t always true; low rental yield potential may simply mean the property is overvalued, and high rental yield potential could point to undervaluation. 

Still, though, you should aim for high net rental yields. These produce healthy cash flows where expenses are easily covered by rental income, and money is left over each month to the bank. High cash flow also offers serviceability, leaving you less vulnerable to market fluctuations.

What Rental Yield Should I Aim For in Australia?

As we’ve alluded to, putting forward precise figures for recommended rental yield is a tricky business. The Commonwealth Bank considers a good rental yield to be 5.5% or above. Some experts advise investors to aim for rental yields of at least 7.5%.

Your rental yield expectations will depend ultimately on where you plan to buy your investment property. There’s a considerable divide between what represents a good rental yield in Australia’s cities and its regional areas. 

While rental yields of 3-5% are pretty standard in metropolitan areas, especially in state capitals, you can often find rental yields of 10% or above in regional towns. But that doesn’t necessarily mean you should be discounting cities from your property hunt.

How to Calculate Rental Yield in Australia

Here are the steps to calculate rental yield in Australia:

Determine the Annual Rental Income

  • Find out the weekly rental rate for the property you’re considering.
  • Multiply the weekly rental rate by 52 to get the annual rental income.
  • Example: If the weekly rental rate is $400, the annual rental income would be $400 x 52 = $20,800.

Calculate the Property Value or Purchase Price

  • If you already own the property, use its current market value.
  • If you’re looking to buy, use the purchase price you’re considering.

Calculate the Gross Rental Yield

  • Gross rental yield is the annual rental income divided by the property value or purchase price, expressed as a percentage.
  • Formula: Gross Rental Yield = (Annual Rental Income / Property Value or Purchase Price) x 100

Calculate the Net Rental Yield (Optional)

  • Net rental yield factors in the expenses associated with the rental property, such as property management fees, maintenance costs, council rates, and more.
  • To calculate net rental yield, deduct the annual expenses from the annual rental income, then divide by the property value or purchase price.
  • Formula: Net Rental Yield = [(Annual Rental Income – Annual Expenses) / Property Value or Purchase Price] x 100
  • Example: If the annual expenses are $5,000, the net rental yield would be: Net Rental Yield = [($20,800 – $5,000) / $500,000] x 100 = 3.16%

The gross rental yield provides a quick way to assess the potential return, while the net rental yield gives a more accurate picture by accounting for expenses. Both figures can be useful when evaluating and comparing investment properties in Australia.

We’ve explained how to calculate both the gross rental yield and net rental yield of a property in greater detail in a separate blog post, which you can find here. 

Rental Yield vs. Growth Capital

Rental yield isn’t the only factor you should be considering when weighing up an investment property. Another key variable is the value of that property over time, otherwise known as its capital growth.

For instance, if your property appreciates in value by 20% by the time you sell, it could prove a more profitable investment than a property with a strong rental yield that depreciates or even stays the same in value. 

Herein lies a key dilemma for residential investors: to prioritise rental yield or growth capital. It’s difficult to find a property with both—but not impossible. In many cases, you’ll have to pick between the two. Choosing which one may help narrow down your investment options.

If you’re seeking long-term capital growth with a buy-and-hold strategy, you should consider properties with low net rental yields in the big cities, where house prices are likely to rise. 

Investors looking for short to medium-term returns will be better served by properties with high rental yields, which are more likely to be found in regional areas.

Where are the Best Places for Rental Yield in Australia?

Australia’s housing market is changing constantly, which makes it difficult to pin down specific areas that yield strong and consistent returns. However, historical data can be used to evaluate the past performance of different regions and predict the best places for rental yield in the future.

Given the wide gap in rental yield potential between cities and regional areas, we’ve reviewed each of these geographical groupings separately. Below, you can find the current best cities and regional areas for gross rental yield in Australia based on recent data.

The Best Cities for Rental Yield in Australia

CoreLogic’s 2023 Q3 Rental Review shows that, for houses, Darwin is currently the highest-yielding capital city for property investors, with an average gross rental yield of 6.02%. Sydney sits at rock bottom, yielding an average of 2.60%.

The full ranking of Australia’s capital cities for houses is as follows:

  1. Darwin, NT: 6.02%
  2. Perth, WA: 4.54%
  3. Hobart, TAS: 4.01%
  4. Brisbane, QLD: 3.74%
  5. Adelaide, SA: 3.73%
  6. Canberra, ACT: 3.59%
  7. Melbourne, VIC: 2.95%
  8. Sydney, NSW: 2.60%

Now, for units, CoreLogic’s 2023 Q3 Rental Review shows that Darwin is the highest-yielding capital city for property investors, with an average gross rental yield of 7.44%. Sydney sits at rock bottom, yielding an average of 3.90%.

The full ranking of Australia’s capital cities for houses is as follows:

  1. Darwin, NT: 7.44%
  2. Perth, WA: 6.29%
  3. Brisbane, QLD: 5.21%
  4. Adelaide, SA: 5.10%
  5. Canberra, ACT: 5.02%
  6. Hobart, TAS: 4.60%
  7. Melbourne, VIC: 4.38%
  8. Sydney, NSW: 3.90%

It should be noted that the figures above are subject to market changes and represent gross rather than net rental yield. However, they are a useful starting point for prospective investors seeking to better understand the big picture of Australia’s rental market.

The Best Regional Areas for Rental Yield in Australia

Queensland, Western Australia, and Southern Australia have the greatest number of towns that rank among the 100 best regional suburbs for rental yields in Australia.

Below, we’ve included the top 5 regional areas in Australia for gross rental yield for houses, again courtesy of CoreLogic data from 2023 Q3. As you can see, it’s dominated by towns in Western Australia and Queensland:

  1. Boulder, WA: 9.3%
  2. Geraldton, WA: 6.7%
  3. Mackay, QLD: 6.5%
  4. Gladstone, QLD: 6.4%
  5. Bundaberg, QLD: 6.1%

While these towns offer impressive rental yields, capital growth is basically non-existent.

Best Rental Yield Suburbs in Australia

The suburbs with the highest rental yields in Australia can vary over time, but some suburbs that have consistently ranked high in recent years include:

Sydney

  • Blacktown (Gross Rental Yield: 4.5%-5.5%)
  • Campbelltown (Gross Rental Yield: 4.8%-5.8%)
  • Mount Druitt (Gross Rental Yield: 5%-6%)
  • Penrith (Gross Rental Yield: 4.5%-5.5%)

Melbourne

  • Frankston (Gross Rental Yield: 4.5%-5.5%)
  • Dandenong (Gross Rental Yield: 4.8%-5.8%)
  • Sunshine (Gross Rental Yield: 5%-6%)
  • Craigieburn (Gross Rental Yield: 4.5%-5.5%)

Brisbane

  • Woodridge (Gross Rental Yield: 6.5%-7.5%)
  • Logan Central (Gross Rental Yield: 6%-7%)
  • Inala (Gross Rental Yield: 6.2%-7.2%)
  • Caboolture (Gross Rental Yield: 5.5%-6.5%)

Perth

  • Armadale (Gross Rental Yield: 5.5%-6.5%)
  • Midland (Gross Rental Yield: 5.8%-6.8%)
  • Mirrabooka (Gross Rental Yield: 6%-7%)
  • Balga (Gross Rental Yield: 6.2%-7.2%)

Note that these rental yields are approximate and can vary based on specific properties, market conditions, and the timing of the data. Additionally, these are gross rental yields, which do not account for expenses such as maintenance, property management fees, and other costs associated with owning an investment property.

What is Rentvesting?

Rentvesting is a strategy where an individual chooses to rent a property in their desired location (often a more expensive area) while simultaneously purchasing an investment property in a more affordable area with the intention of generating rental income.

The main benefits of rentvesting include:

    • Allowing you to live in your desired location while still investing in property.
    • Potentially achieving a higher rental yield on the investment property due to lower purchase prices in more affordable areas.
    • Diversifying your portfolio by investing in a different location from where you live.

Things to Consider When Buying an Investment Property

Rental yields should be one of the key considerations when evaluating an investment property. A higher rental yield means a higher return on your investment through the rental income generated. However, it’s important to balance the pursuit of high rental yields with other factors that can impact the long-term viability and profitability of the investment. 

  • Location: Look for areas with strong rental demand, good infrastructure, and potential for capital growth.
  • Property type: Consider the target tenant demographic and choose a property type (e.g., apartment, house) that suits their needs.
  • Rental yield: Aim for a property with a good rental yield to ensure positive cash flow.
  • Capital growth potential: Evaluate the potential for capital appreciation over the long term.
  • Property condition: Carefully inspect the property and consider any necessary repairs or renovations.
  • Rental market analysis: Research rental rates, vacancy rates, and competition in the area.
  • Property management: Decide whether you will manage the property yourself or hire a professional property manager.
  • Legal and tax implications: Understand the legal and tax obligations associated with investment properties.
  • Financial planning: Ensure you have a solid financial plan and budget to cover expenses and potential periods of vacancy.

Conducting thorough research, seeking professional advice, and carefully evaluating all aspects of the investment property is crucial to making an informed decision.

Final Thoughts: Good Rental Yield in Australia

The answer to what constitutes a good rental yield in Australia depends on your investment strategy.

If you’re looking for long-term capital growth on a property, you’ll likely be drawn to up-and-coming urban areas, where a rental yield of 4.5% or above represents a good return.

If your main focus is maximising rental income, consider regional towns where you can land a high rental yield.

Make sure to use rental yield alongside other ROI metrics to build a more rounded perspective of potential investments and attain your financial goals.

Investing in Property in Australia with Odin Mortgage

Ready to invest in property in Australia? Odin Mortgage can help. Our experienced mortgage brokers will guide you to the right investment loan and financing solution to confidently purchase an income-generating property. 

Take the first step towards financial freedom through property investment – get in touch with Odin Mortgage today for a free, no-obligation consultation.

Get a free Australian mortgage assessment today.

Apply online to get a free recommendation with real rates and repayments.

Frequently Asked Questions

Defining a “good” yield on rental property in Australia isn’t straightforward, as it depends on several factors, such as location (capital cities or regional areas) and other factors, like net vs. gross yield, your investment strategy, and risk tolerance.

Here are some general benchmarks:

  • Most advisors recommend a minimum yield of 5.5%.
  • Commonwealth Bank suggests 5.5% or above as good.
  • Some experts advise aiming for at least 7.5%.

Ultimately, the “good” yield depends on your individual investment goals and risk tolerance. Consulting with a financial advisor specialising in Australian property would be wise to tailor a strategy based on your specific circumstances.

Determining a “good” rental yield in Sydney is trickier than in other Australian cities due to its unique market dynamics. Here’s what you need to consider:

  • Houses: As of December 2023, the average gross rental yield for houses in Sydney is around 2.60%, significantly lower than the recommended nationwide range of 5-8%.
  • Units: Unit yields fare slightly better, averaging around 3.4%, closer to the 7.5-10% national benchmark.

Given the current market context, aiming for a yield above 3.5% for units and 3% for houses in Sydney could be considered decent, though individual circumstances matter. Focus on finding a property that balances acceptable income with long-term capital growth potential. Always ensure thorough research and consult with professionals before making any investment decisions.

Ultimately, the “good” yield depends on your personal investment goals and risk tolerance. Consulting with a financial advisor specialising in Australian property would be wise to tailor a strategy based on your individual circumstances.

Remember, while higher yields may be tempting, be mindful of the trade-offs and risks involved in your specific investment plan.

Some areas with the highest potential return on investment (ROI) for rental properties in Australia include parts of Western Sydney, Logan City in Queensland, and outer suburbs of Melbourne like Frankston and Cranbourne. However, ROI can vary significantly depending on the specific property and location.

According to recent data, the average gross rental yield (which doesn’t account for expenses) for investment properties across Australia is around 3.5% to 4.5%. The average net rental yield (accounting for expenses) is typically 1% to 3% lower.

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