How Much for Expenses?

You may be talking about 2 completely different issues. The tax rate may be 30% ie if you are on a fairly high income bracket. However, expenses for an IP are based on actual expenses. Hence they vary. For -ve geared properties, these can exceed 100%.

Hi Dorothy,

I think what you’re asking is the difference between the gross yield and the net yield.

If you deduct the annual costs of the property (maintenance, rates, agent commission, insurance, body corporate etc) from the gross annual rent and then work out the yield, it will be lower.

Example of gross yield:
Purchase price = $150,000
Annual rent = $13,000 ($250 pw x 52)
Gross annual income = $13,000
Gross yield = 13,000 / 150,000 x 100 = 8.6%

Example of net yield:
Purchase price = $150,000
Annual rent = $13,000 ($250 pw x 52)
Annual outgoings = $3,000
Net annual income = $10,000 ($13,000 – $3,000)
Net yield = 10,000 / 150,000 x 100 = 6.6%

Forget about the 11 second solution.
It’s really just a method of seeing if something is a 10.4% gross yield.

You should be working out the gross yield by dividing the annual rent by the purchase price, and then multiplying by 100 to get a percentage.

To get an even more accurate figure, you could work out the true cost of the property by also adding onto the purchase price the stamp duty and borrowing costs.

Generally speaking, a gross yield of 8% or more is quite decent when you consider what interest rates are at the moment. Of course any depreciation benefits will also increase your returns on paper.