Gross yield vs net yield: the holding costs investors forget

Write the layer on every percentage before you compare two properties.

Itemise. Do not apply a single “cost percentage” borrowed from another suburb. Where a figure is unknown, leave it unknown.

• Council rates, and any waste or fire levies on the notice. Often calculated from a statutory land value that is not a sale price.
• Water and sewerage fixed charges, where the owner pays them.
• Building and landlord insurance. Mapped flood or bushfire can raise the premium or restrict cover. Ask an insurer for that address.
• Management, letting and renewal fees if you will use a manager.
• Maintenance and repairs. A house and a new unit do not share a schedule.
• Strata or body corporate levies, including any special levy already struck.
• Land tax, where that state or territory taxes the holding. Thresholds, rates, aggregation and home exemptions differ. Read the current revenue-office schedule. Do not copy last year’s threshold into this year’s model.
• Vacancy and re-letting time. Use weeks you can defend from listings and letting times, not a national allowance.
• Compliance required by that state’s tenancy and building rules: smoke alarms, pool barriers, minimum standards.
• Purchase costs if you want yield on total outlay: duty, transfer fees, legal and inspection. See the stamp duty calculator for statutory schedules, labelled as schedules.

Labelled illustration, not advice. Ask $720,000. Advertised rent $650 a week. Gross yield = 650 × 52 ÷ 720,000 = 4.69 per cent. Itemised annual holding costs you have sourced: rates $2,400, insurance $1,800, management 7 per cent of collected rent, maintenance allowance $1,500, no strata, land tax unknown in that state so left unknown, vacancy assumed as three unlet weeks because recent comps sat that long.

Collected rent after three vacant weeks: 650 × 49 = $31,850. Management on collected rent: about $2,230. Known holding costs about $7,930. Net property yield on those known costs: (31,850 − 7,930) ÷ 720,000 = 3.32 per cent. Land tax is still unknown, so the net figure is incomplete. Interest is not in it. Tax is not in it. The 4.69 per cent advertisement omitted the list.

Land tax is imposed by states and territories on taxable land above a threshold, with exemptions that usually cover a principal place of residence and usually do not cover an investment dwelling. The valuation basis differs: New South Wales uses a three-year average land value; Victoria uses site value; the ACT uses average unimproved value. See statutory land value. Read the current revenue page for the jurisdiction. This page does not quote a rate in the dollar, because those schedules change.

• Using advertised or appraised rent as if it were achieved.
• Assuming 52 weeks because the market “feels tight”.
• Skipping land tax because the home you live in is exempt.
• Treating a new unit as cheap to hold while ignoring levies.
• Calling a leveraged cash-flow figure a yield, or calling a yield a personal return.

Net yield with holding costs is one of the ten checks. It is completed only where cost inputs exist for the jurisdiction. Where they are not loaded, the check stays unknown rather than being filled from national averages. Gross yield appears where a sourced rent and price exist, labelled as a Districts calculation with its inputs. The rental yield calculator uses the numbers you type and labels the result as your inputs.

Rates and water: the vendor’s notices and the council. Insurance: a quote for the address. Levies: the strata roll. Land tax: that state’s revenue office applied to your holdings. Rent: a signed lease or a five-comp range. Interest: your lender. Tax: a registered tax agent. Whether the purchase suits you: a licensed adviser. This page is arithmetic, not advice.