Investor learning centre · Compare investment property types
Rental yield compares rent with a property’s price or value. Cash flow shows what remains after the money coming in is reduced by the money going out. A positive rental yield does not mean an investment will pay for itself.
When comparing investment properties in Australia, start with a consistent worksheet rather than the highest advertised percentage. This guide explains the measures and uses one hypothetical property to show how different assumptions change the result.
Gross rental yield: the starting calculation
Gross rental yield = annual rent ÷ purchase price × 100.
For this guide we use purchase price, not total acquisition cost, as the denominator. Some calculations use current market value instead. Always check the basis before comparing two advertised figures.
Gross yield does not deduct operating expenses, finance or tax. NAB’s rental-yield guide explains the distinction between gross yield and yield after property expenses.
A worked example: yield is not spendable income
Illustration only: all numbers below are invented assumptions, not a DHPI listing, finance quote, market rent estimate or forecast. Figures are annual, in Australian dollars, and before tax.
| Item | Assumption / result |
|---|---|
| Purchase price | $800,000 |
| Weekly rent | $700 |
| Scheduled rent: $700 × 52 weeks | $36,400 |
| Scheduled gross yield: $36,400 ÷ $800,000 | 4.55% |
| Less two vacant weeks | −$1,400 |
| Rent collected | $35,000 |
| Assumed operating expenses | −$8,000 |
| Net operating income before finance and tax | $27,000 |
| Net operating yield on purchase price | 3.375% |
| Assumed annual loan payments | −$36,000 |
| Annual cash flow before tax | −$9,000 |
The illustrative shortfall is $750 a month on average. Actual receipts and bills will not necessarily occur evenly through the year. Acquisition costs, major capital works and selling costs are outside this annual illustration and need a separate budget.
Be precise about “net yield”
In this example, net operating yield deducts vacancy and property operating expenses but excludes finance and tax. It uses the $800,000 purchase price as its denominator. Other presentations may define “net” differently, so ask for the full calculation.
Write down every inclusion and exclusion. Do not compare a fully occupied gross projection for one property with an expense-adjusted figure for another.
Build an expenses worksheet
Ask for property-specific figures for rates, insurance, management, letting fees, maintenance, strata where applicable, land tax where applicable, and any utilities or services the owner pays. Separate regular bills from one-off works and cash reserves. ASIC’s investment-property guide explains ownership costs and the need to be able to cover periods without tenants.
For a new build, add a pre-rental period covering construction and readiness for occupancy. For co-living, ask who pays furnishing, cleaning and shared services. For commercial property, ask a solicitor to check which outgoings the actual lease allows the owner to recover.
Stress-test three changes
Using the same hypothetical example, keep every other assumption unchanged:
- Four additional vacant weeks: $2,800 less rent would increase the annual shortfall from $9,000 to $11,800.
- $3,000 of additional loan payments: the shortfall would become $12,000. Use a lender’s actual repayment scenarios when assessing a real loan.
- An extra $5,000 cash repair bill: the year’s shortfall would become $14,000.
If all three happened together, the shortfall would be $19,800. This simple sensitivity exercise is not a prediction: it shows why a cash buffer and explicit assumptions matter.
Cash flow, taxable income and capital growth are different
Keep three separate worksheets: the cash budget, the tax calculation prepared with your tax adviser, and scenarios for future sale value. Do not use an assumed tax refund or price increase to conceal a cash shortfall you cannot fund.
Loan payments may contain both interest and principal. Principal repayment reduces debt but is still cash leaving your bank account. Tax treatment is a separate question and depends on the transaction and current rules; this example does not calculate tax deductions or after-tax returns.
What is a good rental yield in Australia?
There is no single percentage that establishes suitability. Ask whether the rental evidence is credible, costs are complete, tenant demand is supported and the property’s risks fit your circumstances. Assess capital requirements and exit options alongside income.
A high advertised yield deserves the same checks as a low one. It does not establish approval for the proposed use, occupancy, future growth or ease of resale.
Questions to send with a property enquiry
- Is the rent supported by an existing lease or a dated appraisal?
- How many occupied weeks are assumed?
- Which costs are included in the advertised yield?
- What owner-paid expenses and major works remain outside it?
- What changes if rent falls, finance costs rise or the property is empty?
Compare options using the same numbers
Use our property-type comparison guide to explore the differences between residential, specialist and commercial options. If you are considering two rental areas, use the dual-occupancy buyer’s checklist to investigate each income stream.
Looking for a property that fits your budget?
Tell DHPI your budget range, preferred locations, property types and timeframe. Mention “rental yield and cash flow” and tell us which assumptions you need clarified. Our team can discuss your property brief and relevant availability; your lender and advisers should verify finance and tax outcomes.
General educational information; reviewed 16 September 2026. Examples are illustrative, not personal financial advice or promised investment results.
