Why top property investors look at rental yield, and what it means

What are the benefits of buying an investment property for its high rental yield, and what else should you consider?

Residz Team 4 min read

Why top property investors look at rental yield, and what it means

You’re keen to invest in property and you’ve heard there’s record demand for quality rentals. What you want to know is, what’s important to consider when buying an investment property?

According to CommBank, the ideal investment outcome for any property investor is a combination of decent house price growth coupled with rising income from your tenants.

In a nutshell, that means location, location, location, and it can also mean a good rental yield. But, not necessarily.

Rental yield is a crucial metric for property investors, indicating the potential income a property can generate relative to its purchase price.

It's calculated by taking the annual rental income, dividing it by the property value, and then multiplying by 100 to get a percentage. For example, a property worth $500,000 that brings in an annual rent of $25,000 would have a rental yield of 5%.

Lilly Schneider, an investment property advisor with Abercromby’s, says in Forbes that a rental yield between 6-11% is typically considered a good return for an investment in Australia.

Conversely, anything significantly below this range might be seen as a poor yield, reflecting either an overpriced property or a market with low rental demand, although this varies depending on regional standards and economic conditions.

However, CommBank says if the gross yield is over 5.5% – and the rent is sustainable over the longer term – the investment property may be undervalued. And, Steve Palise of Palise Property, quoted in Canstar, says higher yielding properties can have a higher chance of vacancy, or underlying vulnerabilities such as being in a flood-risk area.

So, it’s worth being thorough in your research.

Nevertheless, a higher rental yield offers benefits including:

However, while rental yield is a significant factor, it shouldn’t be the sole consideration.

Limitations of Relying Solely on Rental Yield

While rental yield offers a snapshot of potential returns, there are other crucial factors an investor should weigh:

As CommBank says, the condition of a property is also very important with regard to rental yield, because even in a high demand area, you’re not always guaranteed to have tenants.

“As a landlord, you can’t afford to let properties get scruffy if you want high occupancies and good yields.”

Snapshot of Australia’s High Rental Yield Suburbs

Historically, capital cities in Australia have offered higher rental yields compared to regional areas.

Yet, post-pandemic lifestyle changes have shifted this dynamic. Many regional areas, once overlooked for their perceived limited growth, have seen a surge in demand and subsequently in rental yield.

Smart Property Investment’s list of the highest rental yield suburbs shows Lightning Ridge in NSW has a yield of 15.29%, Newman in WA 15.25%, Ouyen in Victoria returns 8.93%, Pioneer in QLD returns 10.16%, Zeehan in TAS 9.17%, Port Pirie West in SA 9.48%, and Tennant Creek in NT 8.83%.

Recently, SQM research data, filtered for capital cities only, named Australia’s Top 20 suburbs with the highest rental yields.

They were:Darwin 7.7%, Woolaning, NT 7.4%, Fortitude Valley 6.6%, Canberra City 6.6%, Driver, NT 6.5%, Point Sturt, SA 6.5%, Rocklea, QLD, 6.4%, Marangaroo, WA 6.2%, Victor Harbor, SA 6.2%, Greenway, ACT 6.2%, Whitby, WA 6.2%, Banksia Grove, WA 6.2%, Maddington, WA 6.1%, Westminster, WA 6%, Ebenezer, SA 5.9%, Wellard, WA 5.9%, Woodville North, SA 5.9%, Old Noarlunga, SA 5.9%, Goolwa, SA 5.9%, Ballajura, WA 5.9%.

Increasing the Rental Yield of Your Property

Steve Palise, author of Residential Property Investing Explained Simply says you can increase rental yield in these 10 ways:


About Residz

Residz has lots of research and data for renters, homeowners, and buyers and sellers about Australian real estate: