Gross Yield vs Net Yield — What Every Investor Needs to Know

When you're evaluating an investment property, yield is one of the first numbers you'll see. But not all yield figures are created equal. Understanding the difference between gross yield and net yield is essential to making informed investment decisions.

What Is Gross Yield?

Gross yield is the simplest calculation. It takes the annual rental income and divides it by the purchase price, expressed as a percentage.

Formula: Gross Yield = (Annual Rent ÷ Purchase Price) × 100

For example, a property purchased for $400,000 that rents for $500 per week ($26,000 per year) has a gross yield of 6.5%. This number is useful for quick comparisons, but it doesn't tell the full story.

What Is Net Yield?

Net yield accounts for the costs of owning the property. It subtracts expenses like council rates, insurance, property management fees, maintenance, strata levies, and vacancy allowance from the annual rent before dividing by the purchase price.

Formula: Net Yield = ((Annual Rent − Annual Expenses) ÷ Purchase Price) × 100

Using the same example: if annual expenses total $6,000, the net rental income is $20,000. Net yield = 5.0%. That's a meaningful difference from the 6.5% gross figure.

Why Net Yield Matters More

Gross yield is a marketing number. Net yield is an investing number. When you're modelling cash flow, servicing debt, and planning your portfolio, net yield gives you a far more accurate picture of what you'll actually earn. Two properties with the same gross yield can have very different net yields depending on their expense profiles.

Common Expenses to Include

• Council rates
• Water rates
• Insurance (landlord and building)
• Property management fees (typically 7–10% of rent)
• Strata/body corporate levies (for units)
• Maintenance and repairs allowance
• Vacancy allowance (typically 2–4 weeks per year)

What's a Good Yield?

There's no universal answer — it depends on your strategy. Cash-flow investors typically target net yields above 5%. Growth-focused investors may accept lower yields (3–4%) if the capital growth potential is strong. The best investments often deliver a balance of both.