What yield would cover your costs?

A useful starting target is the yield that covers your property’s bills and loan payments. It is specific to the deal. For a cash purchase, compare the net income with the return you want on your money.

There is no single rental yield that makes every property a good purchase. Your expenses, borrowing and reasons for buying all matter. A gross yield is a quick comparison; net yield and cash flow tell you more about the commitment.

Rather than aiming for a magic percentage, ask: how much income remains after the bills, how much cash will I need each week, and what happens if the rent stops?

The same advertised yield. A different income.
Two properties5.2%Each costs $600,000 and rents for $600 a week.
Property A3.47%Two vacant weeks and $9,200 in operating costs.
Property B2.73%Two vacant weeks and $13,600 in operating costs.

A collects $30,000 and keeps $20,800 before finance and tax. B keeps $16,400. The difference is $4,400 a year.

A worked funding target

Suppose a $600,000 property has $10,000 annual operating costs, $34,500 annual loan payments and two vacant weeks. With no additional management percentage or capital spending, it needs $44,500 collected rent to break even before tax.

Rent needed to cover this budget
($10,000 + $34,500)÷ 50 occupied weeks= $890 per week

$890 × 52 ÷ $600,000 × 100 = 7.71% gross yield. This is a calculated funding threshold, not a typical market yield or a claim that this rent is achievable.

Lower borrowing or lower costs reduce that threshold. Enter your own figures in the cash-flow calculator to find the weekly rent needed for your budget.

Compare like with like

Use the same vacancy allowance and the same expense categories. Include strata, insurance, management, council rates and maintenance where they apply. A listing that leaves out one of these can appear more attractive without producing more income.

Compare the income with the cash you contribute, too. Borrowing changes cash flow without changing the standard net rental yield. Our gross and net yield guide shows both formulas.

Work backwards from your target

Price at a target net yield
Price=Net operating incomeTarget yield ÷ 100

$20,800 ÷ 0.04 = $520,000 at a 4% target net yield.

This is a price consistent with that income target, not a valuation. It excludes purchase costs, finance, tax and growth. In the calculator, open “Stress test” to explore a target yield alongside a vacancy and interest-rate scenario.

Check the property behind the percentage

Ask for evidence of achievable rent and the major bills. Read the inspection and strata records. A high yield can coexist with expensive works, weak tenant demand or a difficult resale.

Keep three scenarios: your expected case, a lower-rent case and a difficult year with repairs. A property you can fund through all three deserves more attention than one that only works under its best assumptions.

Further reading: ASIC Moneysmart: property investment. Related: calculate weekly holding costs.