Studying the average rental yields of different suburbs is a great way to assess their viability for investment. Analysing this data will help you estimate the rental income you’re likely to receive relative to the value of the property. You can then use this information to determine whether the predicted returns will be enough to cover the property’s expenses and any loan repayments, though it is important to remember that the past is not always an accurate predictor of the future.
During the three months ending December 2022, Orelia and Armadale shared the top spot for the highest rental yields on houses in Perth at 6.7%, while Bayswater came in first place for units at 9.7%. But what does this mean? Read on for a breakdown of what rental yields represent and how you can use them to assist your decision-making.
How do you calculate property rental yield?
Your rental yield is a way of evaluating the return on investment of your rental property and can be used to speculate on how your investment will perform over time. You can express it in two ways:
Gross rental yield
Your gross rental yield represents the annual rental income you earn from your property as a percentage of your property’s value. For example, imagine you charge rent of $500 per week. Over a year, your rental income will total $26,000. Now also imagine that your property is valued at $600,000. Your gross rental yield will be expressed as follows:
[$26,000 / $600,000] x 100 = 4.33%
Net rental yield
Your net rental yield is similar to your gross yield, except it subtracts the annual fees and expenses of owning your property from your annual rental income before dividing it by the property’s value. Let’s take the same example as above and assume yearly expenses of $7,000. Your net rental income figure is now $19,000, meaning your net rental yield is:
[$19,000 / $600,00] x 100 = 3.17%
Examples of fees and expenses related to your property include maintenance, property management fees and insurance premiums. They do not include the interest on any loans you may have taken out to purchase the property.
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Top 10 suburbs for rental yield: houses
| Suburb | Median price 2022 | Oct-Dec 2022 median rent | Rent growth 2022 | Rental yield |
| Orelia | $351,000 | $450 | 28.6% | 6.7% |
| Armadale | $305,000 | $390 | 14.7% | 6.7% |
| Banksia Grove | $450,000 | $570 | 26.7% | 6.6% |
| Kenwick | $386,000 | $488 | 21.9% | 6.6% |
| Greenfields | $365,000 | $460 | 15.7% | 6.6% |
| Medina | $320,000 | $400 | 17.6% | 6.5% |
| Parmelia | $350,000 | $435 | 16.8% | 6.5% |
| Brookdale | $342,000 | $425 | 7.6% | 6.4% |
| Leda | $379,856 | $470 | 11.9% | 6.4% |
| Camillo | $325,500 | $400 | 14.3% | 6.4% |
Source: reiwa.com
Should I pursue a high or low rental yield?
Both are viable strategies, depending on your short and long-term goals. Why?
Reasons to go high
Properties with higher rental yields tend to provide more consistent income to their owners, which is the primary goal of many property investors. In this situation, the investor is likely pursuing a higher rental yield to ensure their rental property returns a better investment than if they had just left their money in the bank to earn interest.
Reasons to go low
Not all investors purchase a rental property to generate a reliable income stream. For example, some may choose to invest in areas with high median property values in the hopes that they achieve high capital growth on their investment over time. Others may pursue a negative gearing strategy in which they plan to initially lose money on their property to reduce their taxable income before selling it in the future for a profit.
Top 10 suburbs for rental yield: units
| Suburb | Median price 2022 | Oct-Dec 2022 median rent | Rent growth 2022 | Rental yield |
| Bayswater | $252,500 | $470 | 17.5% | 9.7% |
| Orelia | $179,000 | $330 | 3.1% | 9.6% |
| Balga | $270,500 | $450 | 15.4% | 8.7% |
| Thornlie | $276,000 | $420 | 5.0% | 7.9% |
| Armadale | $260,000 | $390 | 14.7% | 7.8% |
| Glendalough | $270,000 | $375 | 11.9% | 7.2% |
| Osborne Park | $287,000 | $395 | 12.9% | 7.2% |
| Wembley | $277,500 | $380 | 14.3% | 7.1% |
| Rockingham | $307,500 | $415 | 25.8% | 7.0% |
| Gosnells | $260,000 | $350 | 2.9% | 7.0% |
Source: reiwa.com
Tips for increasing your rental yield
Though not all investors are concerned with growing their rental yield, it does remain a primary goal for many rental property owners looking to generate a regular income from their investment. For this reason, we’ve accumulated a few top tips below:
Be flexible
Being flexible and marketing this in your rental listing is not only a great way to attract tenants, but it’ll also make them more likely to accept a higher rental price. A great example of this is advertising your property as ‘pet friendly’. Many rental hunters have pets and will be more than willing to pay a little extra to ensure they can keep living with them.
Invest in street appeal
Whether it’s a house or an apartment, the public-facing parts of your property will go a long way to forming the first impressions of potential tenants. Rather than miss an opportunity to impress them, put your best foot forward and invest some time and effort in sprucing up the exterior of your property. This could be as simple as weeding the front yard, purchasing a new doormat, or applying a fresh coat of paint. Perception is everything, and if tenants think that your property is somewhere they could comfortably call home, they’ll often be willing to pay more for it.
Work with a Property Manager
A great property manager can add significant value to your investment by handling the administrative activities associated with owning and leasing out a rental property and sharing knowledge and guidance on how best to nurture and grow your investment. Having their expertise at your disposal is an invaluable resource and puts you on the inside track when making decisions about your investment.
Are you looking for a property manager? Get in touch with Access Property Management today.
