What Is Rental Yield and Why Does It Matter?
Rental yield is the annual rental income of a property expressed as a percentage of its purchase price. Gross yield is the annual rent divided by the purchase price. Net yield accounts for all your costs: property management fees (typically 7–10% of rent), council rates, strata fees, insurance, repairs and maintenance, and vacancy periods. After these expenses, your net yield might drop to 3–3.5% in many Australian cities.
The Real Cost of Owning an Investment Property
Beyond the mortgage, you'll typically face property management fees (around $1,500–$3,000 per year), council rates ($1,000–$2,000 annually), water rates, landlord insurance ($1,200–$2,000), strata levies if applicable (can be $3,000–$8,000+ per year for apartments), and a maintenance budget (most experts suggest 1% of the property's value annually). On a $500,000 property with a 20% deposit at 6.5% interest rate, your interest-only repayments would be around $1,625 per month.
Positive vs Negative Gearing: Which Is Better for Passive Income?
Positive gearing occurs when your rental income exceeds all your costs, including mortgage repayments — the surplus is passive income in its truest form. Negative gearing means your costs exceed your income, creating a loss that can be claimed as a tax deduction against other income. For true passive income seekers, positive gearing is the goal, often found in regional areas with strong rental demand and lower purchase prices.
Using a Property Manager to Make Rental Income Truly Passive
The key to making rental income genuinely passive is hiring a good property manager. A property manager handles tenant screening, rent collection, maintenance coordination, lease management, and legal compliance. Their fee (typically 7–10% of gross rent plus a letting fee) is well worth it for the time and stress it saves.
Is Property Passive Income Still Worth It in 2025?
With high property prices in major cities, rising interest rates, and tighter rental regulations, the economics of property investing have become more challenging. For those with significant capital (enough for a 30–40% deposit to achieve positive gearing), strong borrowing capacity, and a long-term view, property remains a viable passive income vehicle. For those starting out, dividend ETFs or managed funds may offer a more accessible path.