Rental returns explained: how to work out what a property really earns

For many, rental income is an attractive proposition, but weekly rent rarely reflects what a property actually earns once costs, vacancies and financing are factored in.

Beyond the upfront price of a property, housing affordability and investment outcomes are increasingly shaped by interest rates and borrowing costs, the Grattan Institute’s Brendan Coates told the Economic Society of Australia early last year.

Indeed, national rents rose 5.2 per cent in 2025, property research firm Cotality reports, with households now spending about 33.4 per cent of income on rent.

Tenants are also prioritising cost and functionality over premium features, while planning constraints and slow housing supply are driving rents up – without always translating into stronger returns for investors.

What is rental yield?

Rental yield estimates how much income a property generates relative to its value. Gross yield, the most quoted figure, is calculated by dividing annual rent by the purchase price.

A property earning $600 a week generates $31,200 a year. On an $800,000 purchase, that’s a gross yield of about 3.9 per cent. It’s a useful starting point, but it doesn’t include expenses, debt or vacancy, meaning it can overstate the actual return.

Gross versus net return

To understand what a property may earn after costs, investors often look at net yield, which accounts for some ownership costs.

Economic research from the University of Melbourne shows headline rental yield can overstate returns by excluding borrowing costs, maintenance and vacancies.

Current data reflects this, with national gross rental yields around 3.56 per cent, as property values have risen faster than rents, Cotality reports.

Once these factors are included, returns can look materially different.

The costs many investors overlook

Owning a rental property comes with ongoing expenses that add up over time. These can include mortgage interest, council rates, strata fees, insurance, property management fees, maintenance and repairs. There are also less visible factors, such as vacancy periods between tenants, unexpected damage or time off market during renovations.

“Loss of rent comprises more than half of landlord insurance claims,” says Carolyn Parrella, head of customer service at Terri Scheer, noting that claim outcomes depend on the relevant policy terms, limits, exclusions and the circumstances of the claim. It’s the third most common claim the specialist landlord insurer deals with, behind tenant damage.

Rising rents can appear positive on the surface, but they do not necessarily translate into stronger net returns once expenses and risks are considered.

Risks such as tenant damage, loss of income and tenants failing to vacate can all affect returns if not properly planned for. Some of these landlord-specific risks may not be covered, or may be limited, under standard home insurance policies, Parrella explains – which is where specialist landlord insurance comes into play.

Why yield is only part of the picture

Some investors prioritise rental income, while others focus on capital growth, with outcomes varying depending on location, price and market conditions.

Focusing solely on weekly rent can be misleading. A property that appears strong on paper may deliver different results once real-world costs are considered.

Even identical properties can deliver very different outcomes depending on location, with surrounding income levels influencing demand, price growth and access to higher-paying jobs.

Renovation also has its limits. Former The Block winners and Location, Location, Location cohosts Mitch Edwards and Mark McKie can attest to this, having flipped more than 20 properties. “Every area has a ceiling on prices, so spending more doesn’t always translate into higher returns,” says Edwards.

How to sense-check your return

Before committing, look beyond headline rent. Estimate annual income, then factor in typical costs such as loan repayments, management fees, maintenance and potential vacancy.

Stress-testing these against changing conditions, including interest rates, can provide a clearer picture. For first-time investors, this can help set more realistic expectations about income and costs over time.

Terri Scheer is Australia’s leading landlord insurance specialist. For more information, visit www.terrischeer.com.au.

This article is general information only and does not take into account your objectives, financial situation or needs. Consider whether it is appropriate for you and seek independent advice before making any decisions.

Insurance is issued by AAI Limited ABN 48 005 297 807, trading as Terri Scheer. Before buying insurance, read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) available at www.terrischeer.com.au.