For years, many property investors bought mainly for capital growth – the hope that a property would be worth a lot more down the track. Plenty were comfortable topping up the difference between the rent and their costs each week while they waited.
That approach is being rethought. Values have been falling in most capital cities, borrowing costs are higher, and tax changes are on the way for some investors. So attention is turning back to a simpler question: how much rent will this property actually earn? That's where rental yield comes in.
Rental yield compares a year's rent with what the property is worth. It's shown as a percentage, which makes it easy to compare one property, suburb or city with another.
Gross yield is the simple version: the yearly rent divided by the property's value, times 100.
Say a unit is worth $850,000 and rents for $670 a week. That's $34,840 in rent over a year, which works out to a gross yield of about 4.1%.
Gross yield doesn't take any costs into account, and owning an investment property comes with plenty. Think council rates, water, insurance, strata levies, property management fees, repairs and, for some owners, land tax.
Take those out and you have the net yield, which is always lower and much closer to what actually ends up in your pocket. If the costs on our example unit came to $11,000 a year, the net yield would be about 2.8%.
These figures are illustrative only. Rent, costs and values vary widely between properties.
Yield goes up when rents rise, when values fall, or both – and right now, both are happening. Nationally, rents are up 5.7% over the past year, adding about $38 a week to the typical rent, while home values have fallen for five months in a row. As a result, the national gross rental yield has reached 3.79%, its highest level since September 2019, according to Cotality.
Rental markets are still tight, too. The vacancy rate – the share of rental homes sitting empty and advertised for lease – was 1.3% nationally in July, according to SQM Research. In Brisbane it was just 0.9%, which means competition for rentals remains strong.
Yields vary a lot depending on where you look and what you buy. Smaller capitals such as Darwin and Hobart tend to offer higher yields. And in most cities, units return more rent for their value than houses do. In Brisbane, for example, the gross yield is 4.1% for units and 3.3% for houses.
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Capital growth is never guaranteed, and the near-term outlook is more mixed than it has been. KPMG's August forecast has national house prices falling 1.1% in 2026, while unit prices are expected to rise 2.2%. For Brisbane, KPMG expects house prices to finish the year 4.6% higher and units 7.3% higher. These are forecasts, not promises, but they help explain why investors are paying closer attention to what a property earns while they hold it.
When a property's costs are more than the rent it brings in, it runs at a loss. That's what people mean when they say a property is negatively geared.
Here's how that can look. Using our example unit, say you borrowed $680,000 (80% of its value) on an interest-only loan at 6.5%. The interest alone would be about $44,200 a year. After costs, the rent covers $23,840 of that, leaving a shortfall of around $20,360 a year – or roughly $390 a week – before any tax is taken into account.
Illustrative example only. The interest rate is an assumption for the purpose of the example, not a rate on offer. Your own figures will depend on your loan, the property and your circumstances.
Cotality's research director, Tim Lawless, has noted that yields in most larger cities would need to rise a long way before rent covers holding costs, especially while interest rates stay high. So a higher yield doesn't necessarily mean a property pays for itself – but it can make the gap much easier to manage.
Changes to negative gearing and capital gains tax (CGT) were announced in the May Budget and are now law. They don't affect everyone, so it's worth understanding where you fit.
Negative gearing. At the moment, a loss on an investment property can generally be used to reduce tax on your other income, such as your wages. From 1 July 2027, that changes for established homes bought after 7.30pm (AEST) on 12 May 2026. For those properties, losses can only be offset against income from residential property, including capital gains when a property is sold. Any unused losses can be carried forward to future years.
What isn't changing. If you already owned a property, or had signed a contract to buy one, before 7.30pm on 12 May 2026, the negative gearing changes don't apply to it. Eligible new builds – broadly, newly built homes that add to the housing supply – can still be negatively geared.
Capital gains tax. From 1 July 2027, the 50% CGT discount will be replaced by indexation. Indexation adjusts what you paid for the property for inflation, so tax applies to the real gain. It comes with a minimum tax rate of 30% on capital gains. The new approach only applies to gains made after 1 July 2027. Buyers of eligible new builds can choose between the old discount and the new rules when they sell.
For someone buying an established property now, the practical upshot is simple. A weekly shortfall can't be softened by tax in the same way it used to be, so the rent a property earns carries more weight. We're not tax advisers, and the right answer depends on your situation, so please talk these changes through with your accountant. Our article on the negative gearing and CGT reforms goes into more detail.
Investors have become more cautious. The number of new investor loans fell 8.6% in the June quarter, and their total value fell 10.2%, according to the Australian Bureau of Statistics.
Among those still buying, some are looking more closely at properties where the rent covers a bigger share of the costs. That might mean considering units rather than houses, more affordable suburbs, regional markets or new builds.
Higher yields can come with trade-offs, though. A higher-yielding area may have grown more slowly in the past, or have a smaller pool of buyers when it's time to sell. The right balance between yield and growth depends on your goals, your budget and how long you plan to hold the property.
Yield doesn't just affect your cash flow. It can also affect how much you're able to borrow.
When you apply for an investment loan, the lender counts the expected rent as part of your income. But most lenders only count part of it – often somewhere around 70% to 80% – to allow for vacancies and running costs. How much they count, and how they treat your existing properties, varies from lender to lender.
That's where comparing lenders can make a real difference. Two lenders can look at the same property and the same rent and arrive at quite different borrowing amounts.
Whether you already own an investment property or you're thinking about your first, it's a good time to run the numbers carefully – rent, costs, interest and tax together.
We can show you how much you could borrow for an investment property, how different lenders treat rental income, and how a change in rates could affect your repayments. Pair that with advice from your accountant on the tax side, and you'll have a clear picture before you commit. We work with more than 45 lenders, and under the Best Interests Duty we're required to recommend what suits your circumstances.
This article contains general information only and does not take into account your objectives, financial situation or needs. It is not tax, legal or financial advice. The negative gearing and capital gains tax changes are complex and how they apply depends on your circumstances – speak with your accountant or a registered tax agent before making investment decisions. Yield, cash flow and borrowing examples are illustrative only. Market figures are point-in-time and forecasts are not guarantees. Information current as at 16/09/2026.
'We', 'us' and 'our' refer to McIntyre Finance (Credit Representative number 519302 is authorised under Australian Credit Licence Number 389328) and our related businesses. Connective Credit Services Pty Ltd, Level 29, 555 Collins Street, Melbourne VIC 3000. Phone 1300 656 637. Complaints: complaints@connective.com.au
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