When you’re considering buying an investment property in Melbourne, one of the first things you’ll likely ask is: “What kind of rental yield can I expect?”
It’s a great question. Rental yield is a key metric for investors because it measures the return on your property based on the income it generates. But it’s also just one part of a well-rounded investment strategy.
The Melbourne rental market is diverse, with rental yields varying significantly depending on the property type and location. The potential returns vary widely, from suburban family homes to inner-city apartments. Let’s take a closer look to help you understand what kind of yield you can expect, and how to consider yield as part of your broader investment strategy.
What Is Rental Yield?
There are two types of yield you’ll hear about: gross and net.
- Gross yield is the annual rental income divided by the property’s purchase price.
- Net yield factors in expenses like maintenance, management fees, insurance, and council rates. This gives a more realistic sense of your return.
Example:
If a property costs $800,000 and brings in $32,000 in annual rent, the gross yield is 4%. If ongoing costs are $5,000 a year, the net yield drops to 3.4%.
Typical Rental Yields Across Melbourne
According to current data, gross rental yields in Melbourne average around 3.2% for houses and 4.6% for units.
CoreLogic recently reported that “declining values (-3.0%), along with moderate rental growth (4.1%), saw Melbourne’s gross rental yield rise 29 basis points over the year to 3.71%.” That’s a positive sign for investors who are looking for improved returns in a market that has seen some softening in values.
Inner-city properties tend to offer lower yields but may come with stronger long-term capital growth. Suburbs further out often provide higher rental yields, but growth may be slower. The key is to understand your priorities. Is it cash flow, growth, or a combination of both that matters most to you?
What Affects Melbourne Rental Yield?
A few core factors influence rental yield:
- Purchase price: The lower the price relative to rent, the higher the yield.
- Rental income: Demand from tenants, location, and property features can push this up.
- Vacancy rates: A property that sits empty will pull your yield down.
- Ongoing costs: Maintenance, strata, and property management all impact your net yield.
- Market conditions: Interest rates and investor activity play a role, too.
Recent rental data shows the market is steadying after the rapid growth seen in 2023. Kaytlin Ezzy, an economist, noted that “rental affordability continues to be a significant drag on rental growth” and that the pace of growth is slowing across most capital cities.
Yield vs Growth: Finding the Balance
While yield reflects short-term cash flow, capital growth builds your wealth over time. Many of our clients prioritise growth in areas with solid fundamentals, even if it means accepting a slightly lower yield at the outset.
For example, we recently helped a client secure a two-bedroom villa unit in a tightly held Melbourne suburb. The property delivered a modest 3.5% yield, but our research indicated strong future growth due to infrastructure projects and low supply. Twelve months later, it had already outperformed similar properties in the area.
How Parker Buyer Advocates Helps
We don’t chase yield alone. Our role is to help you choose investment-grade properties that align with your long-term goals. That means balancing location, property type, cash flow, and capital growth potential.
We go beyond the numbers and conduct extensive due diligence to ensure the property aligns with your investment strategy. We can guide you at every step, no matter if you’re investing for income, growth, or a combination of the two.
Aligning Your Investment Strategy with Your Personal Goals
Rental yield is important, but it’s not the full picture. Understanding your goals is what truly matters. For some investors, cash flow is king. For others, long-term growth will deliver better results.
Want to understand what kind of yield aligns with your investment goals?
Book a call with Lisa for a personalised strategy session.
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