If you have an investment property (or you’re thinking about getting one), then it’s important to be able to work out and understand your rental yield. Read on to find out everything you need to know about investment property yield, including answers to FAQs.
What is rental yield?
Investment (rental) property yield is the rental income you earn from an investment property expressed as a percentage of the cost (or costs) associated with the property. There are two types of rental yields – gross and net.
What is gross rental yield?
Gross yield is the annual rental income from the property expressed as a percentage of its purchase price. For example, if you buy a property worth $650,000 and the annual rent that you earn from it is $26,000, then your gross rental yield is 4% (i.e. $26,000 divided by $650,000).
What is net rental yield?
Net yield is the annual rental income from the property less any property expenses expressed as a percentage of its purchase price. Typical expenses associated with investment properties and net rental yield include:
- loan interest,
- council rates,
- body corporate fees,
- insurance, and
- repairs and maintenance costs.
These expenses are also tax-deductible against your income.
If you buy a property worth $650,000, your total annual rent income is $26,000 and your annual expenses on it are $6,500, then your net rental yield is 3% (i.e. $19,500 divided by $650,000).
Why is rental yield important?
Working out your rental yield helps you to work out the return on your investment (ROI). To calculate rental yield helps you to compare whether you are currently earning a good return compared to other investments you could make either in the property market or elsewhere (such as in the share market).
Different property market locations and different types of properties have high or low rental yield. In other words, some rental yield areas will be higher than others. If you’re looking to buy, look for a good property in a good location with a good rental yield potential.
Current rental yields in Newcastle, Lake Macquarie and Maitland
According to the latest figures, including average property value purchase price:
- Newcastle currently has a gross rental yield of 3.8% for units and 2.6% for houses.
- Lake Macquarie currently has a gross rental yield of 3.64% for units and 3.36% for houses.
- Maitland currently has a gross rental yield of 3.9% for units and 4.1% for houses.
How we can help
If you are thinking about an investment property or home loan and you’d like to explore your options, then talk to our licensed and experienced brokers at Wisebuy Investment Group. We service clients in the Newcastle, Lake Macquarie and Maitland areas. We can also help you calculate rental yield as well as if you’re looking to refinance your property loan.
We work with more than 60 lenders in the Australian market and we can even help you with your application. Importantly, we work for borrowers, not lenders.
Contact us today for an obligation-free chat to find out more and get started on your property investment journey. We’d be happy to answer any questions you have and to explore your options with you.
