How to Calculate Your Property Investment Return in Australia

Most people look at one number when evaluating an investment property — the rental yield. But rental yield alone tells you very little about whether a property is a good investment. A 5% gross yield property in a declining suburb might destroy wealth; a 3% yield property in an inner-city location growing at 10% per year might be exceptional.

Understanding how to calculate and interpret multiple return metrics is what separates informed property investors from those who buy on gut feel and newspaper headlines.

The four metrics every property investor needs

Metric	What it measures	What it doesn't tell you
Gross rental yield	Income relative to purchase price	Operating costs, vacancy, financing
Net rental yield	Income after expenses relative to value	Leverage, capital growth
Cash-on-cash return	Cash income on cash invested	Capital growth, tax benefits
Total return	Everything — income + capital growth	Risk, quality of growth

Each metric answers a different question. Used together, they give a complete picture.

1. Gross rental yield

Gross yield is the simplest and most widely quoted metric. It measures annual rental income as a percentage of property value, before any expenses.

Formula:

Gross yield = (Annual rent ÷ Property value) × 100

Example:

• Property value: $750,000
• Weekly rent: $550
• Annual rent: $550 × 52 = $28,600
• Gross yield: ($28,600 ÷ $750,000) × 100 = 3.81%

Gross yield is useful for quick comparisons between properties. It tells you nothing about the cost of holding the property.

Typical gross yields by city (indicative, June 2026):

City/region	Typical gross yield range
Sydney (metro)	2.8–3.8%
Melbourne (metro)	3.0–4.2%
Brisbane (metro)	3.8–5.0%
Perth (metro)	4.5–6.0%
Adelaide (metro)	4.5–5.5%
Regional centres	5.0–8.0%

Higher yields typically come with lower capital growth prospects — the property market generally prices both in.

Use our Rental Yield Calculator to calculate gross and net yield on any property.

2. Net rental yield

Net yield accounts for the annual costs of holding the property — council rates, insurance, property management fees, maintenance, strata levies, and land tax. It tells you what you actually earn from the rent after paying to maintain the asset.

Formula:

Net yield = ((Annual rent − Annual expenses) ÷ Property value) × 100

Example:

• Annual rent: $28,600
• Annual expenses: $9,800 (rates $2,200, insurance $1,400, management 8% $2,288, maintenance $2,000, land tax $1,912)
• Net income: $28,600 − $9,800 = $18,800
• Net yield: ($18,800 ÷ $750,000) × 100 = 2.51%

The gap between gross yield (3.81%) and net yield (2.51%) in this example is 1.30%. This "yield gap" varies but is typically 1–2% depending on the property type and state.

Note: Net yield as calculated here excludes loan interest — it's a property-level metric, not an investor-level one. Loan interest depends on how much you borrowed and at what rate, not on the property itself.

3. Cash-on-cash return

Cash-on-cash return measures the annual cash income (or loss) relative to the actual cash you have invested. This is the most useful metric for investors who are using a mortgage.

Formula:

Cash-on-cash return = (Annual pre-tax cash flow ÷ Total cash invested) × 100

Where annual pre-tax cash flow = rent received − all cash expenses including mortgage interest and principal.

Example:

• Property: $750,000
• Deposit: $150,000 (20%)
• Loan: $600,000 at 6.2% interest only = $37,200/year
• Annual rent: $28,600
• Annual expenses (excluding interest): $9,800
• Annual pre-tax cash flow: $28,600 − $9,800 − $37,200 = −$18,400 (negative cashflow)
• Cash invested: $150,000 deposit + $25,000 costs = $175,000
• Cash-on-cash return: (−$18,400 ÷ $175,000) × 100 = −10.5%

This negative cash-on-cash return means you're paying $18,400 out of pocket annually to hold this property. That's the "negative gearing" cost — offset by the capital growth and (for grandfathered investors) the tax benefit.

After the 2026 Budget changes, investors who purchased established properties after 12 May 2026 lose the ability to offset this $18,400 loss against salary from 1 July 2027. The cash-on-cash return doesn't change — the cashflow impact is the same — but the tax refund that previously made it manageable is now deferred.

4. Total return

Total return captures everything: rental income plus capital growth (or loss). It's the most comprehensive measure of investment performance but requires an assumption about capital growth.

Formula:

Total return = Net rental yield + Capital growth rate

Example:

• Net yield: 2.51%
• Assumed annual capital growth: 5.5%
• Total return: 2.51% + 5.5% = 8.01%

This 8.01% is the return on the full property value — not on your invested capital. The return on equity (your actual cash invested) is amplified by the leverage effect.

Return on equity example:

• Property grows 5.5% on $750,000 = $41,250 capital gain
• Net rental income: $18,800
• Total gain: $60,050
• Your equity invested: $175,000
• Return on equity: $60,050 ÷ $175,000 = 34.3%

The leverage multiplies your return on equity significantly — in a rising market. It also amplifies losses in a falling market.

Use our Property Investment Return Calculator to model all four metrics for any property with your specific financing.

What good returns look like

There is no universally "good" return for Australian investment property — it depends on your goals, risk tolerance, and the alternatives.

As a rough benchmark:

• Gross yield above 5%: considered strong; indicates reasonable cashflow
• Net yield above 3.5%: solid net income position
• Total return above 8–9%: broadly competitive with a diversified ETF portfolio
• Negative cashflow above $25,000/year: substantial holding cost; make sure growth assumptions support it

Many high-growth city properties in 2026 are sitting at gross yields of 3–4% with total returns of 6–10% (when including capital growth). Regional and outer-suburban properties often have 5–7% gross yields but lower capital growth projections.

How depreciation affects your effective return

Depreciation (Division 43 and Division 40) is a non-cash deduction that reduces your taxable income without costing you cash. For properties built after 1992, depreciation can add $3,000–$10,000+ per year in tax savings.

To include depreciation in your return calculation, add the tax value of the depreciation to your annual cash income:

Adjusted cash-on-cash return:

• Annual pre-tax cash flow: −$18,400
• Depreciation tax saving (e.g., $8,000 at 39% marginal rate): +$3,120
• Adjusted annual cash flow: −$15,280
• Adjusted cash-on-cash return: (−$15,280 ÷ $175,000) × 100 = −8.7%

The property is still negatively geared, but the real out-of-pocket cost drops from $18,400 to $15,280 once depreciation tax savings are included.

Frequently asked questions

What is a good rental yield in Australia?

A gross rental yield above 5% is generally considered strong in Australian property markets. Below 4% is typical for high-demand metro areas (Sydney, inner Melbourne) where capital growth compensates for lower income. Net yield (after expenses) is typically 1–2% below gross yield. What counts as "good" depends on the capital growth prospects — a 3% yield in a fast-growing suburb may outperform a 6% yield in a stagnant regional town.

How do I calculate the return on my property investment?

Calculate four metrics: (1) Gross yield = annual rent ÷ property value; (2) Net yield = (annual rent minus expenses) ÷ property value; (3) Cash-on-cash return = annual cashflow (including mortgage payments) ÷ cash invested; (4) Total return = net yield + capital growth rate. For a complete picture, include the tax benefit of negative gearing and depreciation deductions in your cashflow calculation.

What is cash-on-cash return for property?

Cash-on-cash return measures the annual cash income (or cost) as a percentage of the cash you've actually invested — your deposit and purchase costs. It differs from yield because it includes your mortgage payments. Most negatively geared Australian investment properties have a negative cash-on-cash return initially (you're paying out of pocket each year) but generate strong returns through capital growth and eventual rent increases that create positive cashflow.

How does leverage affect my property return?

Leverage magnifies returns on your invested capital. If a $750,000 property grows 5.5% ($41,250), and you only invested $175,000 cash (80% borrowed), your return on equity from capital growth alone is 23.6% — four times the property's return rate. This amplification works in both directions: a 10% fall in property value on the same numbers would be a 43% fall in your equity position.

Should I compare property returns to ETF returns?

Yes, but carefully. A direct yield-to-yield comparison is misleading — property uses leverage that ETFs typically don't. Compare total returns (capital growth + income) on a like-for-like basis after tax and costs. Broad Australian/international ETF portfolios have historically returned 8–10% per year over 20-year periods. Australian residential property total returns have been similar in strong markets (6–9%), but with concentration risk and much higher transaction costs.

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This article is for general information only and does not constitute financial, tax or legal advice. Individual circumstances vary. Consult a licensed financial adviser before making decisions based on this information.