Professionals Real Estate 
Do you invest in or are you interested in investing in property? You will need to know what rental yield is and how to maximise it.
Investing in property is a strategy to grow your wealth but you need to get your numbers right if you want to achieve the best outcomes.
One of the terms you will need to familiarise yourself with is rental yield.
What is rental yield?
Rental yield is the profit you bring in from your investment property.
Once you subtract all the costs of owning the property, such as maintenance, repairs, depreciation and any other expenses, you will have your rental yield.
This figure is generally measured as a percentage of the property’s overall value. For example, the average investment property in the Australian beachside suburb of Manly in NSW is under 2% because of the high value of homes in the area. Meanwhile, some other parts of NSW can generate more than 6% rental yield.
Why is rental yield important?
The reason you buy investment property is to make money.
Most investors play a long game and look to hold the home so they can sell for a profit. However, you need to factor in the costs of owning the property. The higher the rental yield, the lower your overheads are during the time you own it.
While resale may be the point where you make the bulk of your profit, rental yield is also a significant contributor.
How to calculate rental yield
To calculate your gross rental yield:
- Take your annual rental income
- Divide it by the value of your rental property
- Multiply the result by 100
For your net rental yield:
- Calculate all the expenses that have gone into your investment property
- Calculate your annual rental income
- Subtract your total expenses from your total rental income
- Divide the result by the value of your property and then multiply by 100
Check out our online rental yield calculator for a quick answer.
A gross rental yield of between 3% and 5% in urban areas is considered pretty good in Australia, while it should be above 5% in regional areas.
How to generate a high rental yield
The best way to achieve the highest rental yield is to get the best rental price possible for your property while keeping expenses low.
The good news is that the rental market is very tight in a lot of Australian cities and suburbs right now, so there is an excellent opportunity to generate a significant rental yield.
To maximise your rental yield:
- Set your rental rate in accordance with the local market: Some landlords hold their property for a long time and fail to raise the rent. If you have a good property manager, they will make sure you charge a market rate, regardless of how much your mortgage costs.
- Upgrade the home: Some basic improvements to your property can add to the asking price. Consider upgrading the kitchen cabinets or adding storage to the bedrooms, for example.
- Maintain the property regularly: The longer you leave things, the more expensive they get so create an annual schedule to help take care of the property. This will prevent small problems from becoming big ones.
- Consider allowing pets: People may pay a little extra to be allowed to keep their furry loved one on the property. If you sign a ‘pet agreement’ with them, you can charge more and ensure they pay for any damage to the property.
- Use a property manager: The most effective way to maximise your rental yield is to work with a skilled property manager. In addition to helping you improve the home and attract the highest paying tenants, they can share their advice before you buy an investment property and let you know whether or not the rental yield will align with your goals.
Are you ready to invest in property? Contact your local Professionals representative today.
