Rental yield: how to calculate it, price to it, and protect it from vacancy

Calculating it properly

Gross yield = annual rent ÷ property value × 100

Net yield = (annual rent − annual expenses) ÷ property value × 100

Gross yield is the number quoted in advertising. Net yield is the number that matters. Expenses to include: rates, insurance, management fees, maintenance, accountancy, body corporate levies, and a realistic vacancy allowance. Exclude mortgage interest from the yield calculation itself — that’s a financing question, not a property performance question, and mixing them makes properties incomparable.

Worked example. A property worth $900,000 rented at $700 a week:

• Annual rent: $36,400
• Gross yield: 4.04%
• Annual expenses of, say, $9,000 across rates, insurance, management and maintenance
• Net yield: 3.04%

The gap between those two numbers is where the actual decisions live.

Vacancy is the largest controllable drag

One vacant week costs 1.9% of annual rent. Four vacant weeks cost 7.7%. Put that against a rent increase: pushing rent from $700 to $720 gains $1,040 a year, while four weeks of vacancy caused by over-pricing costs $2,800. The increase has to hold for nearly three years to recover a single over-pricing mistake. This arithmetic is why “price to the market and let quickly” beats “hold out for the best rent” almost every time.

Pricing against real data

Use the MBIE market rent tool, built from bonds actually lodged rather than asking prices. Filter by suburb, property type and bedroom count. Listing figures such as Trade Me’s reflect what is being asked, which runs ahead of agreed rents in a soft market. Compare like with like: same bedroom count, same property type, same condition, same inclusions — a three-bedroom house and a three-bedroom townhouse are not comparators. Legal constraints on increases: once every 12 months, with 60 days’ written notice. For a fixed term, only if the agreement allows it.

Letting faster

Start marketing the day notice is given, not the day the tenant leaves. Arrange viewings during the outgoing tenancy where the tenant consents — remember that showing the property to prospective tenants requires the tenant’s permission, not just notice. Present it properly. Professional photography, an accurate listing, and a clean, warm property — the listing photos do most of the work before anyone views. Fix the obvious first. A property let with visible deferred maintenance either sits, or lets to whoever will take it. Be responsive to enquiries — applicant attrition on slow responses is real and substantial. Be compliance-ready. Healthy Homes compliance stated up front removes a question mark that otherwise slows decisions.

Retention beats re-letting

The cheapest vacancy is the one that doesn’t happen. Turnover costs advertising, letting time, cleaning, and void weeks, every time. What retains good tenants:

• Responsive maintenance. The single biggest driver.
• Fair, predictable rent reviews. Modest annual increases tracking the market are accepted. A large jump after three years of neglect prompts a move.
• Straightforward communication, and proper notice.
• A warm, dry property. Comfortable homes retain tenants.

A tenant who stays four years instead of two saves roughly a full re-letting cycle plus the associated void.

Controlling the cost side

Plan maintenance rather than reacting. Deferred maintenance compounds — a $200 gutter clean prevents a $6,000 rot repair. Review insurance annually. Check the sum insured reflects rebuild cost, and check the policy conditions you must meet for cover to hold. Claim every legitimate expense. Improve where tenants pay for it: heating, insulation, kitchen and bathroom condition — not high-end finishes a mid-market rental won’t reward.

The three numbers to track

• Net yield, annually
• Void weeks per year
• Average tenancy length

Most owners track only the first. The second and third are what move it.

Frequently asked questions