Rental yield is the yearly rent from a property shown as a percentage of its price, and you can work it out with one short sum. If you are thinking about buying an investment property in Reservoir, it is a good number to understand before you talk to a lender. It is only one piece of the picture, and we will walk through it together.
What Is Rental Yield and How Do You Calculate It?
Rental yield is the annual rent a property earns divided by its purchase price, then multiplied by 100 to give a percentage. Gross yield uses the rent before any costs. Net yield takes off costs such as council rates, insurance, property management fees and repairs.
As an example, a property that earns $600 a week brings in $31,200 over 52 weeks. If it cost $600,000, the gross yield is 5.2%. These numbers are illustrative only and are not a view on Reservoir prices. Your own sum will use the price of the property you are looking at and a realistic rent for it.
It helps to work out both gross and net yield. Gross yield is handy for comparing properties quickly. Net yield shows what is left after the running costs, which is closer to what lands in your bank account.
Why Rental Yield Does Not Decide Your Loan Amount
Your rental yield does not set your investment loan amount. A lender looks at your whole financial picture, including your income, your debts and your living costs. The rent is only one part of that.
When a lender counts rent as income, it usually does not count all of it. APRA, the banking regulator, says prudent lenders should allow a minimum 20% haircut on expected rent. This allows for times when the property is empty. So no more than 80% of the rent is counted. APRA also says lenders would normally rely less on a rental appraisal for a future tenant than on actual rent received.
Banks and other authorised deposit-taking institutions must also test your ability to repay at a rate at least 3.0 percentage points above the loan rate. A high yield on paper does not change that test. Our borrowing capacity page explains how lenders work out what you can borrow.
How Yield Looks Once You Add Loan Repayments
A property can have a decent yield and still cost you money each week once loan repayments are included. Yield ignores your loan, so it only tells half the story.
Consider a buyer looking at a $600,000 loan on a 30-year term. We use an illustrative rate of 6.75% a year here, which is not a current offer. The principal and interest repayment comes to about $3,891 a month, or roughly $898 a week. Compare that with the $600 weekly rent in the earlier example, and the rent falls short by about $298 a week before any rates, insurance or repairs.
Now take an interest-only period at the same 6.75%. Interest on $600,000 is $40,500 a year, or about $779 a week. That is lower, but you are not paying off any of the loan. When the interest-only period ends, repayments move to principal and interest over the shorter remaining term, so they rise. Lenders also assess you on that higher repayment, so interest-only does not lift how much you can borrow.
The outcome for this buyer is a clear picture. The yield looked healthy at 5.2%, yet the loan repayments mean they would need to fund a weekly gap from their own income. Knowing that before applying lets them decide if the numbers suit their budget. You can run your own figures through a loan repayment calculator.
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Which Costs Reduce Your Net Rental Yield?
Costs such as council rates, insurance, property management fees and repairs reduce your net yield. These are also generally deductible for the period the property is rented or genuinely available for rent.
Interest on a loan used to buy a rental property is also generally deductible, but only the interest part of a repayment. The principal part is not. Both interest-only and principal and interest loans work this way. Tax rules are detailed and depend on your situation, so please speak to your accountant before relying on any of this.
If you buy an apartment or townhouse, a body corporate may charge fees too. Check these early, as they come off your yield just like any other cost.
Negative Gearing Rules for New Investors
Negative gearing means your rental costs, including loan interest, are higher than your rent. The rules for using that loss changed in 2026, so the date you buy matters.
Losses on residential investment properties held at 7:30pm AEST on 12 May 2026 can still be deducted against other income, such as your salary, until the property is sold. Eligible new builds bought after that date keep the same treatment. From the 2027-28 income year, net rental losses on established homes bought after that time can only be deducted against other residential property income, including residential capital gains. Unused losses can be carried forward.
A property that loses money each year is not a plan on its own. You still carry the cost every week, and the tax outcome depends on your circumstances. Please speak to your accountant about how this applies to you.
Reservoir in Context
Reservoir is in Melbourne, Victoria, and our team can walk you through lending for the area. Our first home buyers in Reservoir page has local information. Before you commit to any suburb, check recent rents and sale prices for the exact type of property you want, as yields vary from one property to the next.
Choosing a Loan That Fits Your Yield Numbers
The right loan is one whose repayments, fees and features suit your cash flow. Once you know your likely yield, you can compare loan structures with a clearer head.
If you are considering a split between variable and fixed rates, check which features, such as extra repayments or offset, apply to each part of the loan. An offset account can reduce interest charged, so check the fees and features of any offset account with the lender. Our investment loans page covers the main options, and our guide to buying your first investment property is a good next read.
If you already own a property, equity release loans are another way some investors fund a deposit, but there are trade-offs. The lender must approve the loan and assess whether you can afford it, you borrow more so your total debt rises, and your existing property becomes the security for the extra debt. Borrowing above 80% of the property's value also needs separate lenders mortgage insurance approval. Whether the interest is deductible depends on how the borrowed funds are used, not on the property securing the loan, so please speak to your accountant.
If you are comparing offers, ask about the rate discount on offer. Our page on getting a lower interest rate explains what to ask.
Ready to see how your numbers stack up? Call one of our team or book an appointment at a time that works for you, and we will go through your yield and loan options step by step.
Frequently Asked Questions
How do you calculate rental yield?
Divide the annual rent by the purchase price, then multiply by 100. For net yield, subtract costs such as rates, insurance, management fees and repairs from the rent first.
Does rental yield affect how much I can borrow?
Not directly. Lenders look at your whole financial position, and APRA says prudent lenders count no more than 80% of expected rent.
Does interest-only increase my borrowing power?
No. Lenders assess interest-only loans on principal and interest repayments over the remaining term after the interest-only period, so borrowing power does not rise.
Can I deduct my loan repayments from my tax?
Generally only the interest part of repayments on a rental property loan is deductible, not the principal. Please speak to your accountant about your situation.
