For property investors, rental yield is one of the most important metrics to understand. It tells you whether your investment is delivering the returns you need and helps you compare different investment opportunities. But with Sydney’s property market constantly evolving, what actually constitutes a good rental yield in 2025?
At Local Agency Co., we work with investors across the Eastern Suburbs, and Lower North Shore every day. We’re seeing some significant shifts in the rental landscape – from the shrinking pool of traditional tenants to the growing demand for furnished properties. Understanding rental yield in this changing environment is more important than ever.
Here we break down how to calculate rental yield, what the current Sydney market looks like, and most importantly, whether your investment property is actually delivering good returns.
Understanding Rental Yield: The Basics
Rental yield is essentially a measure of how much income your property generates compared to its value. Think of it as your property’s annual return on investment, expressed as a percentage. It’s one of the key metrics investors use to assess whether a property is worth buying – or whether an existing investment is performing as expected.
There are two ways to calculate rental yield, and understanding the difference between them is crucial.
Calculating Gross Rental Yield
This is the simpler method and gives you a quick snapshot of potential returns. You’ll need two pieces of information:
- Property Value: Either the purchase price or current market value
- Annual Rental Income: The rent you receive (or could receive) over a year
The formula is:
(Annual Rental Income ÷ Property Value) × 100 = Gross Rental Yield
Example:
Let’s say you’re considering a unit in Paddington valued at $1,000,000. Based on current market rents, you could reasonably expect $730 per week (the current Sydney median for units). That’s $37,960 per year.
($37,960 ÷ $1,000,000) × 100 = 3.8% gross rental yield
This quick calculation is useful when comparing different investment opportunities or getting a feel for what suburbs might work for your strategy.
Calculating Net Rental Yield
While gross yield is helpful for initial assessments, net rental yield gives you the real picture. This calculation factors in all the costs of actually owning and maintaining an investment property.
You’ll need to account for:
- Property management fees (typically 5-7% of rent collected)
- Insurance premiums
- Council rates and water rates
- Strata levies (for units and townhouses)
- Routine maintenance and repairs
- Building insurance
As a general rule, these expenses can typically add up to around 20% of your annual rental income, though this varies depending on the property type and age.
The formula is:
((Annual Rental Income – Annual Property Costs) ÷ Property Value) × 100 = Net Rental Yield
Example:
Using our $1,000,000 Paddington unit with $37,960 annual rent, let’s say annual costs are $7,600:
(($37,960 – $7,600) ÷ $1,000,000) × 100 = 3.0% net rental yield
This lower figure is a more accurate reflection of your actual returns. For current investors, calculating your net rental yield annually using real figures is crucial for understanding whether your property is truly profitable.
Important note: Mortgage repayments and interest charges aren’t typically included in rental yield calculations. These are financing costs specific to your personal situation, not property ownership costs. However, they obviously affect your cashflow and overall investment strategy.
What’s a Good Rental Yield in Sydney?
This is where things get interesting – and where the market has shifted significantly in recent years.
According to the latest data from Cotality Australia (December 2025), Sydney’s median rental yields are:
- Houses: 2.6% gross rental yield (median weekly rent $780)
- Units: 4.1% gross rental yield (median weekly rent $730)
Traditionally, any yield above 5% has been considered “good” for Australian property investors. But context matters enormously. Sydney’s property values are among the highest in the country, which naturally compresses yields compared to regional areas or other capital cities.
Here’s how to think about it:
For investors in our patch – Eastern Suburbs, and Lower North Shore – yields typically sit in the 3-4.5% range for quality unfurnished properties. Units generally outperform houses on yield, though this comes with trade-offs in terms of capital growth potential.
The Sydney Market Context: What’s Changed in 2025
The Sydney property market in 2025 looks quite different to even 12 months ago, and these changes are directly impacting yields across the board.
The Shrinking Tenant Pool
We’re witnessing a fundamental shift in Sydney’s rental market. Lower interest rates combined with the expanded Australian Government 5% Deposit Scheme – now with unlimited places and higher property price caps up to $1.5 million in Sydney – have transformed many renters into first home buyers.
The numbers tell the story. At Local Agency Co., we’ve observed a 50% reduction in prospective tenants inspecting unfurnished rental properties from July to November 2025 compared to the same period in 2024. The traditional tenant pool is shrinking as more Australians transition to homeownership.
The Rise of Furnished Rentals
Interestingly, while unfurnished rental demand has softened, furnished rentals are thriving. Sydney’s growing population of professionals, skilled migrants, and temporary residents are actively seeking turnkey accommodation. These tenants are stable, reliable, and prepared to pay premium rents for the convenience – often 10-20% above unfurnished rates.
Investor Activity at 8-Year High
Despite these changes, investor confidence has surged. According to the recent PropTrack Terri Scheer Investor Report, investors now make up their highest share of new lending since 2017. The combination of falling interest rates and tight rental conditions (vacancy rates remain below 1% in many Sydney areas) is driving renewed investment activity.
More encouragingly, over 90% of investment properties sold in the past year were profitable – selling for more than their purchase price. This represents one of the highest proportions on record.
Would you like to receive our investor newsletter?
Click and Subscribe to our newsletter and get instant access to our exclusive e-book — absolutely free!
|
|---|
Does Your Property Stack Up?
For current investors, here’s how to assess whether your rental yield is where it should be:
1. Compare to suburb averages
Look at what similar properties in your area are achieving. If you’re significantly below average, there may be room for improvement.
2. Consider your property type
Units should generally yield higher than houses. If your unit is yielding below 3.5%, investigate why.
3. Review your expenses
High strata fees, excessive vacancy periods, or inflated management costs can kill your yield. Audit your expenses annually.
4. Think about furnishing
For suitable properties (typically studios, 1-bedrooms, or 2-bedrooms in professional areas), furnishing could boost your yield by 10-20%.
5. Factor in capital growth
A 2.5% yield on a property with strong capital growth potential might be better than a 4.5% yield on a stagnant asset.
Improving Your Rental Yield
If your numbers aren’t where you’d like them to be, there are several strategies worth considering:
- Review your rent rate: Are you charging market rates? Many long-term tenants are paying below current market value. A professional rental appraisal can help determine the right rate.
- Consider furnishing: For properties in professional areas close to the CBD, universities, or hospitals, furnished rentals command significant premiums.
- Reduce expenses: Shop around for insurance, review management fees, and ensure you’re not overpaying for services.
- Make strategic improvements: Fresh paint, modern fixtures, or adding air conditioning can justify higher rents. But always calculate whether the cost justifies the rental increase.
- Minimise vacancy: The fastest way to kill your yield is extended vacancy periods. Working with an experienced property manager who understands your local market is crucial.
The Bottom Line
In Sydney’s current market, a “good” rental yield needs to be assessed in context. A 3.5% net yield on a well-located property with strong capital growth potential could be an excellent investment. A 5% yield on a property in an area with limited growth prospects might not be. The key is understanding your numbers, your strategy, and how your property fits into your overall investment plan. With the traditional tenant pool shrinking and market dynamics shifting, staying on top of your rental yield has never been more important.
Want to Know How Your Property Measures Up?
If you’re unsure whether your rental yield is where it should be, or you’d like to understand what returns you could achieve in specific suburbs across Eastern Suburbs, or Lower North Shore, we can help.
At Local Agency Co., we provide comprehensive rental appraisals tailored to Sydney’s unique market conditions. Whether you’re considering purchasing your first investment property or reviewing your existing portfolio’s performance, our experienced team can guide you through the numbers.
CONTACT US TODAY TO DISCUSS YOUR PROPERTY WITH A LOCAL PROPERTY MANAGEMENT EXPERT