Gross Yield Is the Number Agents Quote and Nobody Receives
The yield quoted in a listing is annual rent divided by the purchase price, and nobody receives it. The number that matters is net yield: rent after rates, insurance, management fees, maintenance, land tax and an allowance for vacancy, divided by the total cost including stamp duty. It is typically a third to a half below the gross figure.
- The answer: Net yield is rent less all holding costs and a vacancy allowance, divided by the purchase price plus stamp duty and acquisition costs.
- The trap: Maintenance is not a small residual. Over a long holding period it averages a meaningful percentage of the property's value each year, and it arrives in lumps.
- The recommendation: Use a long-run average for maintenance rather than last year's actual. A year with no repairs is not evidence that there are none.
Where the AI summary above gets this wrong
"The property has a 4.5% rental yield."
That's surface-true. Here's what it misses:
- That is gross yield and it ignores every cost — Rates, insurance, management fees, maintenance, land tax and vacancy all come out of it, and the net figure is typically a third to a half lower.
- The denominator is usually wrong too — Yield quoted on the purchase price ignores stamp duty and acquisition costs, which for a substantial property is several per cent of what you actually committed.
01 What comes out of the rent
Council rates, water rates, building insurance, landlord insurance, strata levies where applicable, and property management fees are the recurring ones. Together they commonly account for a fifth to a quarter of gross rent.
Maintenance and repairs are the variable one and the most often understated. Over a long holding period they average a meaningful percentage of the property's value each year, and they arrive in clusters rather than evenly.
Land tax applies above the state threshold and is aggregated across your holdings there — the mechanics are in the land tax reference. For a second property it can be a substantial annual amount.
Vacancy is the last. Even a well-let property has periods between tenants, and a realistic allowance is a few weeks a year rather than none.
02 What the denominator should be
Yield quoted on the purchase price understates the capital committed. Stamp duty, legal fees, building and pest inspections and any buyer's agent fee are all part of what the property cost you.
For a substantial property, stamp duty alone is several per cent, so including it reduces the calculated yield noticeably. It is also the correct figure because it is the amount that would have been invested elsewhere.
The same applies on exit: agent commission, marketing and legal costs reduce what you receive, and they belong in any total return calculation even though they do not affect the annual yield.
Shows: the net rental yield after holding costs and a vacancy allowance, calculated on the total acquisition cost rather than the purchase price. Ignores: depreciation, which is not a cash cost, interest on any loan, tax, and capital growth.
Source: ATO — Negative gearing
03 Where the return actually comes from
For most Australian residential property the net yield is modest and the return is expected to come from capital growth. That is a coherent position and it should be stated rather than assumed, because it changes what the investment is.
It also changes how the property behaves in retirement. A low net yield against an assessed value at the pension taper is the arithmetic in the keep or sell post.
And it explains why negative gearing exists at all: a property whose net yield is below its holding costs produces a loss, and the strategy is a bet that growth exceeds it — the arithmetic is in the negative gearing post.
Maintenance is the line people leave out, because last year there was none. Over twenty years a property needs a roof, a kitchen, a hot water system, a fence and a repaint, and the long-run average is a real percentage of the value every year. Put it in the calculation and the yield changes materially.
FAQ
How do I calculate rental property returns?
Net yield is rent less all holding costs and a vacancy allowance, divided by the purchase price plus stamp duty and acquisition costs. It is typically a third to a half below the gross figure quoted in listings.
What costs should I include?
Council and water rates, building and landlord insurance, strata levies, management fees, maintenance at a long-run average, land tax above the state threshold, and an allowance for vacancy.
Why include stamp duty in the denominator?
Because it is part of what the property cost you and part of what would otherwise have been invested elsewhere. On a substantial property it reduces the calculated yield noticeably.
Sources
Regulator references
- ASIC Moneysmart — Property investment · ASIC Moneysmart · 2026Investment property: the costs of holding one and the risks of gearing.Last verified: 2026-09-07
- ATO — Negative gearing · Australian Taxation Office · 2026Negative gearing: when a rental loss can be offset against other income.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.