Property listings and investment forums throw around rental yield figures constantly, almost always the gross number — the biggest, most flattering version of the calculation. The gap between that headline figure and the actual net yield, after real running costs, is often wide enough to change whether a property looks like a genuinely good investment at all.
The Two Calculations
Gross yield = (annual rental income ÷ property value) × 100. Simple, and the number most commonly advertised — but it ignores every single ongoing cost of owning the property.
Net yield = ((annual rental income − annual operating expenses) ÷ property value) × 100. This subtracts rates, insurance, property management fees, maintenance, and any body corporate or letting fees before comparing the result to the property's value — a meaningfully more honest picture of actual return.
Worked Example
A $650,000 investment property renting for $650/week ($33,800/year):
| Calculation / Cost Item | Value |
|---|---|
| Annual rent | $33,800 |
| Gross Yield | 5.2% |
| Less: rates (~$3,200/yr) | − $3,200 |
| Less: insurance (~$1,800/yr) | − $1,800 |
| Less: property management (~8% of rent, ~$2,700/yr) | − $2,700 |
| Less: maintenance allowance (~$2,000/yr) | − $2,000 |
| Total annual expenses | ~$9,700 |
| Net annual income | $24,100 |
| Net Yield | 3.7% |
The gap here — 5.2% gross down to 3.7% net — is over a full percentage point, purely from costs that never appear in a typical listing's advertised yield figure.
Common Mistakes
Investors frequently compare properties using gross yield alone, missing that two properties with identical gross yields can have very different net yields if one carries higher body corporate fees, older-building maintenance needs, or a lower-value tenancy requiring more active management.
Investors also forget property management fees when self-managing initially, then add them later if circumstances change — modelling net yield with a management fee included from the start gives a more realistic long-term comparison, even for an investor who currently self-manages.
A third mistake: not accounting for vacancy periods. A yield calculation based on 52 weeks of rent assumes zero vacancy — building in even a conservative 1-2 weeks per year of allowance gives a more realistic net figure.
Where This Calculator Has Limits
It uses illustrative expense estimates — actual rates, insurance, and management costs vary significantly by region, property type, and age of the building, so real figures should replace these estimates for any specific property. It also doesn't include mortgage interest, capital growth, tax treatment (including the current interest deductibility rules for residential property, which have changed materially in recent years), or one-off costs like a Healthy Homes compliance upgrade.
Frequently Asked Questions
Is net yield always lower than gross yield?
Yes — net yield subtracts real operating costs, so it's mathematically always equal to or lower than the gross figure for the same property.
What's considered a "good" net yield in New Zealand?
It varies significantly by region and property type — inner-city apartments and regional standalone houses can have very different typical ranges, so comparing within a similar property category and area is more useful than a single national benchmark.
Should I include mortgage interest in my yield calculation?
Not in the standard yield formula — yield measures the property's own income performance. Mortgage costs are usually assessed separately as part of overall cash flow, since financing structure varies hugely between investors.
Does a higher yield always mean a better investment?
Not necessarily — yield is one factor. Capital growth potential, location, tenant demand, and the property's condition all matter alongside the income return.
Are property management fees always around 8%?
That's a common range, but it varies by region, provider, and service level — confirm actual local rates rather than assuming a fixed percentage.
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Educational content, not financial advice. Rental yield figures, expense estimates, and tax treatment of investment property can vary significantly and change over time — confirm current figures with a property manager, accountant, or licensed financial adviser. Written by the MortgagePro Global team.