Rental yield tells you how hard a property works for you, but the figure on the listing is rarely the figure your lender uses. If you are weighing up an investment loan in Fairfield or nearby, knowing the gap between the two can save you from a cash flow shock.
This article walks through four common mistakes, with one worked example, so you can test a property before you commit.
What Is Rental Yield and How Do You Calculate It?
Rental yield is a year of rent divided by the property's purchase price, shown as a percentage. Gross yield uses rent alone. Net yield subtracts your running costs first.
To get a weekly rent into a yearly figure, multiply it by 52. A rent of $650 a week is $33,800 a year. Divide that by the purchase price and you have the gross yield. It is a quick way to compare properties, but it says nothing about what lands in your pocket.
Mistake 1: Relying on Gross Yield Instead of Net Yield
Net yield is the more honest number because it removes the costs of owning the property. Those costs include council rates, insurance, property management fees and repairs. If the property is in a strata complex, add the body corporate levies too.
Two properties can show the same gross yield and leave you with very different incomes. A unit with high levies and a house with lower ongoing costs are good examples. Ask for the strata levy figures before you make an offer, then run the net yield on every property you shortlist.
Mistake 2: Assuming Your Lender Counts All of the Rent
Lenders generally count only part of your rent when they assess an investment loan application. APRA's guidance says sensible lenders apply a minimum 20 per cent haircut to expected rent, so no more than 80 per cent is counted. This is a buffer for gaps between tenants, not a measure of your actual costs.
Lenders also place less weight on a rental appraisal than on actual rent received. How they treat a new purchase with no tenant yet is set by each lender's own policy.
On top of that, banks must test your ability to repay at a rate at least 3.0 percentage points above the loan's actual rate. Rent that looks strong on paper can still leave you with less borrowing capacity than you expected. Check your numbers with a broker before you sign a contract.
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How Much Rent Covers Investment Loan Repayments?
Rent rarely covers every cost on day one, so plan for a shortfall and work out how long you can carry it. The example below shows how the numbers play out.
This is an illustrative example only, using a rate of 6.75% p.a. Consider an investor who borrows $600,000 on an interest-only loan for a property renting at $650 a week.
- Yearly interest at 6.75% is $40,500, or about $779 a week.
- Rent of $650 a week leaves a gap of about $129 a week, and that is before rates, insurance, management fees and repairs.
- For serviceability, the lender may count only 80 per cent of that rent, which is $520 a week.
The investor decides the gap is too tight. They add more deposit and borrow $550,000 instead. Interest at the same 6.75% is $37,125 a year, or about $714 a week. The gap before other costs shrinks to about $64 a week. They also keep a cash buffer for vacant periods and repairs.
The trade-off is that a bigger deposit ties up more of their savings, which cuts the cash they have for other goals. Interest-only repayments also do not reduce the loan balance. Lenders assess an interest-only loan on the principal and interest repayments over the remaining term, so interest-only does not lift how much you can borrow. Use a repayment calculator to test your own figures, and compare how investment loans are structured before you pick one.
Mistake 3: Chasing a High Yield and Ignoring Everything Else
A high yield is one measure of a good property, not the only one. A strong yield can come with higher vacancy risk, higher running costs or weaker capital growth. Yield and growth are separate things, and a property investment strategy should weigh both against your cash flow and your goals.
Before you buy, ask how long similar properties take to find a tenant, and check the vacancy rate for the area using a current source such as a rental report from a property data provider. A property that sits empty for weeks can wipe out the yield advantage.
Mistake 4: Forgetting the Negative Gearing Rules Have Changed
The tax treatment of rental losses now depends on when you buy. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, losses on residential properties held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income, including salary, until the property is sold. Losses from eligible new builds acquired after that date can also still be deducted against all income.
From the 2027-28 income year, net rental losses on established residential properties acquired after that time can only be deducted against other residential property income, including residential capital gains. Excess losses can be carried forward. Interest on the loan is still deductible when the property is rented or held to earn rent, but only the interest part of a repayment, not the principal.
This makes net yield and cash flow more important, because you may carry a loss without being able to use it against your wage. Speak to your accountant about how these rules apply to your situation before you buy.
Checking Your Existing Loan Before You Buy
If you already own a home, your current loan affects how much you can borrow for an investment. Redrawing or releasing equity for a deposit is also a decision with tax consequences, because the deductibility of interest depends on how the borrowed money is used. Talk to your accountant first. A loan health check can show where your current loan sits, and refinancing may be worth looking at if it no longer suits your plans. Refinancing can involve discharge, valuation and other fees, and these vary by lender.
Call one of our team or book an appointment at a time that works for you, and we will run your rental yield and repayment numbers across lenders before you make an offer.
Frequently Asked Questions
How do I calculate rental yield?
Multiply the weekly rent by 52 and divide by the purchase price. That gives gross yield. For net yield, subtract running costs such as council rates, insurance, management fees, repairs and any body corporate levies first.
How much rent will a lender count for an investment loan?
APRA's guidance says prudent lenders apply a minimum 20 per cent haircut to expected rent, so no more than 80 per cent is counted. Each lender sets its own policy on the evidence of rent it accepts.
Does an interest-only loan let me borrow more?
No. Lenders assess an interest-only loan on principal and interest repayments over the remaining term after the interest-only period. That generally means a lower maximum loan than an equivalent principal and interest loan.
Can I still negatively gear an investment property?
It depends on when you buy and what you buy. Different rules apply to properties held at 12 May 2026, eligible new builds, and established properties bought after that date from the 2027-28 income year. Check with your accountant.
