Gross rental yield vs cash flow: why a 5% yield can still lose money

Gross yield is a property ratio. Cash flow is rent minus opex minus interest. The loan can make a positive yield a deficit.

Labelled illustration, not advice. Price $700,000. Advertised rent $673 a week. Gross yield = 673 × 52 ÷ 700,000 = 5.00 per cent. Annual rent is $34,996. That is the marketing layer.

Now put 1.5 per cent of price as operating costs: $10,500. Net operating income is $24,496. Net property yield is 3.50 per cent. Still no loan.

At 80 per cent LVR the loan is $560,000. At 6.5 per cent interest-only, annual interest is $36,400. Pre-tax cash flow is $24,496 − $36,400 = −$11,904. The 5 per cent yield is still true. The account is still short about $229 a week before vacancy, principal or tax.

The Districts calculator uses exactly that stack: annual rent, opex as a percentage of price, loan = price × LVR, interest = loan × rate. Cash flow is interest-only. Vacancy is not a separate input. If you want two vacant weeks, reduce the weekly rent, as in the rentvesting guide.

Interest cover, or DSCR, is net operating income divided by annual interest. In the illustration, 24,496 ÷ 36,400 is 0.67. Below 1.00, rent and opex do not cover interest. That is a funding gap, not a rounding error.

Lower LVR, a lower rate, or lower opex can close the gap. A principal-and-interest loan widens it, because principal is extra cash out. See interest-only versus principal-and-interest. Vacancy, a special levy, or a rate rise of 2 percentage points, as Moneysmart suggests testing, can open it again.

Do not close the gap by raising the rent in the calculator until the sign turns positive. Achievable rent is a comparable-listing question, not a residual.

• Comparing two properties on gross yield and calling the higher one “better cash flow”.
• Leaving LVR at zero so the calculator never shows interest.
• Assuming 52 paid weeks because the suburb “feels tight”.
• Calling the pre-tax cash-flow line an after-tax result.
• Using last year’s opex on a strata building that has just struck a special levy.

On a property page, gross yield appears where a sourced rent and price exist, labelled as a calculation. Net yield with holding costs stays unknown unless those cost inputs are loaded for the jurisdiction. The calculator is where you type interest and LVR. Districts does not invent a rate or an LVR for you.

A deficit does not establish that the property is a poor investment. It establishes that, on these inputs, rent does not cover opex and interest-only interest. Tax may change the personal result, especially after the 2026 negative-gearing rules. A surplus does not establish that the purchase suits you. See how to use data without treating it as advice.

Replace advertised rent with a five-comp range. Convert real opex to a percentage of price. Use a quoted rate and the LVR the lender will actually write. Re-run with two vacant weeks and with a 2-point higher rate. Then follow how to calculate whether the property is cash-flow positive if you want the checklist form of the same arithmetic.