What is a Good Rental Yield for Investment Property?

A good rental yield sits between 4% and 6% in most Australian capital cities, though that figure means less than you think if the property sits empty or loses value.

You calculate gross rental yield by dividing annual rent by the purchase price and multiplying by 100. Net yield strips out your costs like rates, insurance, body corporate, and maintenance before you run the same calculation. That second figure tells you what you actually keep.

Gross Yield vs Net Yield: Which One Matters

Gross yield gets quoted in ads and talked about at barbeques because it sounds impressive. Net yield tells you whether the property actually works once you factor in what it costs to hold.

Consider a unit in a regional centre returning 7% gross yield. Annual rent comes in around $28,000, but once you deduct $8,000 in body corporate fees, $2,500 in rates, $1,200 in landlord insurance, $2,000 in property management, and another $1,500 for repairs, your net yield drops closer to 4.6%. That's before you account for vacancy. If the unit sits empty for three weeks during the year, your actual return falls further.

When you apply for an investment loan, lenders assess serviceability using net rental income, not gross. They'll typically shade the rent by 20% to account for vacancy and expenses, so a property with thin margins on paper can fail serviceability even if the gross yield looks solid.

What Rental Yield Looks Like Across Different Property Types

Units in outer suburbs or regional areas often return higher gross yields than houses closer to the city, but that spread narrows once you account for holding costs and capital growth.

A two-bedroom unit 40 kilometres from the CBD might return 5.5% gross, while a three-bedroom house 15 kilometres out returns 3.8%. The unit has lower body corporate than a high-rise but still carries strata fees. The house has land content, which typically appreciates over time, while the unit relies more heavily on rental demand to justify the price.

Yields above 7% usually come with trade-offs. Either the property is in a location with limited capital growth, the tenant pool is narrow, or vacancy runs higher than the metro average. That doesn't make them bad investments, but it does mean you're relying on rental income rather than price appreciation to build wealth. If you're working rotating shifts and need passive income that doesn't require constant attention, a property that stays tenanted matters more than one that theoretically returns an extra percentage point.

How Vacancy Rate Changes What You Actually Earn

Vacancy rate measures how long a property sits empty between tenants. A vacancy rate above 3% in a suburb usually signals either oversupply or weak demand, and both eat into your yield.

If your property returns 5% gross yield and sits vacant for four weeks across the year, your effective yield drops to roughly 4%. That's assuming no other issues. If the vacancy stretches longer because the suburb has limited appeal or too many competing rentals, your return keeps falling. Regional mining towns often show gross yields above 8%, but vacancy can run at 10% or higher depending on employment cycles. You might collect strong rent when it's tenanted, but the gaps between leases can wipe out the advantage.

Lenders look at vacancy data when assessing your borrowing capacity. A suburb with consistently high vacancy gets treated as higher risk, which can mean a lower loan amount or a requirement for a bigger deposit. Some lenders won't touch certain postcodes at all if vacancy has been elevated for more than a year.

Capital Growth vs Rental Income: What Works on a Police Salary

Properties with lower yields in established suburbs often deliver stronger capital growth over time, while high-yield properties in outer regions rely more on rental income to cover holding costs.

If you're working full-time rostered shifts, negative gearing still applies to properties you purchase before the new rules take effect in July 2027, meaning you can offset losses against your salary. That makes a property returning 3.5% in an inner suburb viable if the land value is increasing. You're not relying on the rent to cover everything; you're using your income to support the shortfall while the property appreciates.

For properties purchased after May 2026, the new negative gearing rules mean losses on established residential property can only be offset against other residential property income from July 2027 onwards. That shifts the focus toward properties that either break even or generate positive cash flow from the start. A unit returning 5.5% net in a suburb with steady tenant demand becomes more appealing than a house returning 3.2% that requires ongoing top-ups you can't claim against your wage.

The choice depends on whether you're building equity for a future sale or generating income to support another purchase. If you're planning to expand your property portfolio within a few years, capital growth gives you usable equity. If you need the rental income to service a second loan, yield becomes the priority.

How Lenders Assess Rental Income When You Apply

Lenders don't use the full rental figure when calculating serviceability. Most will assess your application using 80% of the market rent to account for vacancy, management fees, and maintenance.

If a property rents for $500 per week, the lender treats it as $400 per week when working out whether you can afford the repayments. That $100 reduction per week equates to $5,200 per year, which can be the difference between approval and decline if your borrowing capacity is tight. Some lenders will use 100% of the rent if you provide a signed lease, but that assessment only lasts as long as the lease term. Once it expires, they revert to the shaded figure.

If you're applying for an interest-only loan, the shaded rent needs to cover the interest repayments and still leave enough serviceability buffer for your other commitments. A property returning 4.5% gross might not generate enough rental income after shading to meet serviceability, even if the yield looks acceptable on paper. For more on structuring investment loans, the interest only loans for police officers page covers how repayment type affects your borrowing power.

What Happens When You Refinance an Underperforming Property

If a property isn't returning enough rent to support the loan, refinancing becomes harder because lenders reassess serviceability using current income and current rates.

You might have purchased a unit returning 5% gross yield, but if the area has since flooded with new developments and rents have dropped, your net yield could now sit at 3.8%. When you approach a lender to refinance, they'll assess your ability to service the loan based on that lower figure. If your salary hasn't increased enough to offset the drop in rental income, you may not qualify for the same loan amount, even though you've been making repayments without issue.

Some investors in this position choose to switch from interest-only to principal and interest to reduce the monthly repayment and improve serviceability. Others will use equity release from another property to pay down the underperforming loan and bring the balance into a serviceable range. The key issue is that a property with weak yield limits your options. If you're planning to refinance or purchase another property, rental income matters as much as equity.

When High Yield Becomes a Red Flag

A yield above 8% in a capital city suburb or above 10% in a regional area usually signals either short lease terms, high tenant turnover, or structural issues with the property or location.

Properties advertised with yields in the double digits often rely on short-term leases, student accommodation, or boarding house arrangements that don't qualify for standard investment loan products. Some lenders won't touch properties with more than two separate tenancies under one title. Others exclude properties in certain regional postcodes entirely if vacancy or economic decline has been flagged in their credit policy. You can end up with a property that returns strong rent but can't be refinanced or sold without taking a loss because the buyer pool is limited.

If a property has been on the market for months and the yield still looks unusually high, it's worth questioning why no one else has bought it. Sometimes the answer is that local investors know something the advertised numbers don't show. A 12% yield means nothing if the tenant leaves and the property sits empty for six months, or if the area has lost its major employer and rents are falling.

Call one of our team or book an appointment at a time that works for you. We'll run the numbers on rental yield, serviceability, and what your actual return looks like once holding costs and vacancy are factored in. If you're working shifts, we can meet outside standard business hours.

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