The ‘yield’ is the money produced as a return on investment, shown as a percentage of the money invested.
Property investors are concerned with the ‘rent yield’, i.e the amount of rent per annum that the property will command.
The rent yield is calculated by annualising the rent and dividing it by the cost of the property.
Eg. a property offered for $500,000 with a market rent of $550pw has a rent yield of:
$550pw x 52 = $28,600 ÷ $500,000 = 5.72%
Gross yield is the total rent divided by the property price, whereas Net yield takes into account the costs associated with management of the property, i.e. what you actually get in the bank each week/month.
Rent yields tend to fall as property prices rise. Regional areas often offer attractive yields for this reason; property prices are low relative to the metropolitan area. The downside may be that the rate of capital appreciation in regional areas may be quite slow. Ideally, a combination of yield and growth potential is what the investor is looking for.