Rental yield tells you how much income a property generates relative to its purchase price.
For investors in Camberwell, where property values sit well above the Melbourne median, yield becomes the deciding factor in whether a property can sustain itself or require constant top-ups from your salary. A unit returning 4 per cent gross yield might cover most of its holding costs, while a 2.5 per cent yield on a period home could mean you're feeding the property $1,500 or more each month out of pocket. From 1 July 2027, new tax rules mean that negative cashflow on properties purchased after May this year can no longer be offset against your wage income, so yield moves from important to critical.
Gross Yield vs Net Yield: What Lenders Actually Look At
Gross yield is annual rent divided by purchase price, expressed as a percentage. Net yield subtracts ongoing costs such as body corporate fees, council rates, insurance, property management, and maintenance before calculating the percentage.
Lenders assess net yield when determining how much rental income they'll factor into your borrowing capacity. A Camberwell apartment listed at $650,000 with rent of $550 per week delivers a gross yield of 4.4 per cent. Once you deduct $5,000 in body corporate fees, $2,200 in rates, $1,200 in insurance, $1,700 in management fees, and a $1,500 maintenance allowance, the net yield drops to around 2.7 per cent. That difference affects how much the lender will count toward servicing your loan. Most lenders shade rental income by 20 to 30 per cent to account for vacancy and costs, so understanding net yield gives you a realistic picture of what the bank will accept.
How Yield Affects Your Investment Loan Amount
Higher rental yield increases the loan amount you can service because the property contributes more toward repayments.
Consider an investor looking at two properties: a renovated two-bedroom unit in central Camberwell at $700,000 returning $580 per week, and a three-bedroom townhouse closer to the border with Ashburton at $850,000 returning $650 per week. The unit yields 4.3 per cent gross, the townhouse 4.0 per cent. After lender shading, the unit contributes around $21,000 annually to serviceability, the townhouse around $24,000. If the investor earns $110,000 and has minimal other debt, the higher absolute rental income from the townhouse may support a larger total loan, but the unit's superior yield relative to price means less reliance on personal income to cover shortfalls. When lenders apply the serviceability buffer and debt-to-income cap, that distinction can determine whether you're approved at all.
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Interest-Only Loans and the Role of Yield in Cashflow
Interest-only repayments are lower than principal-and-interest, which can make a marginal yield work in the short term.
An interest-only investment loan at a variable rate on a $650,000 borrowing might cost around $2,700 per month in interest alone, compared to $3,600 per month on principal-and-interest over 30 years. If your net rental income is $1,900 per month, the interest-only structure leaves an $800 monthly shortfall instead of $1,700. That difference matters in Camberwell, where holding costs are high and many investors are managing multiple properties or relying on rental income to meet the debt-to-income cap introduced in February. Interest-only terms typically run for one to five years, after which the loan reverts to principal-and-interest unless you renegotiate. During the interest-only period, the property isn't reducing debt, so you're depending on capital growth to build equity. If yield is too low to keep cashflow stable even on interest-only terms, the property becomes unsustainable once repayments increase.
Vacancy Rates and the Camberwell Rental Market
Camberwell's rental vacancy rate has remained below 2 per cent through most of the past 18 months, driven by demand from families seeking access to zoned schools and professionals wanting proximity to both the city and the eastern suburbs.
Low vacancy supports consistent rental income, which reduces the risk that your property sits empty for weeks between tenants. A property that re-lets within seven days has minimal income disruption. One that takes six weeks to fill loses a month and a half of rent, which on a $600 per week property equals $3,600 in lost income that you'll need to cover from savings or salary. Lenders account for vacancy when shading rental income, but local conditions matter. A well-presented two-bedroom apartment near Burke Road or Riversdale Road typically attracts tenant interest quickly, while a dated unit in a poorly managed complex may struggle. When you're selecting a property, check recent leasing activity for comparable properties in the same street or building, not just the suburb average.
How the New Negative Gearing Rules Change the Yield Equation
From 1 July 2027, rental losses on residential properties purchased after 12 May 2026 can only be offset against other residential rental income or carried forward, not against salary or wages.
If you buy a Camberwell investment property now and it costs you $18,000 more per year to hold than it generates in rent, you can no longer deduct that loss against your personal income to reduce your tax bill. The loss is quarantined until you have other rental profits to absorb it, or until you sell and apply it against any capital gain. Properties purchased before the 12 May cut-off, or eligible new builds, remain under the old rules. This makes yield the primary measure of viability for any established property purchase moving forward. A property yielding 3 per cent net might have been acceptable when negative gearing provided a tax offset worth $7,000 per year. Without that offset, the same property now costs you the full $18,000 out of pocket annually, and you'll need to fund that from after-tax income while waiting for capital growth.
Fixed vs Variable Rates and Their Impact on Yield Performance
Fixed rates lock in your interest cost for a set period, which stabilises cashflow and makes it simpler to project whether rental income will cover repayments.
Variable rates move with the market, so your cashflow changes each time the lender adjusts the rate. If you fix at the current investor rate and your rent is $2,400 per month while your interest cost is $2,600, you know the monthly shortfall will be $200 for the duration of the fixed term. On a variable rate, a 0.25 per cent increase might add another $110 per month to your repayment, widening the gap. In a rising rate environment, a fixed term provides predictability, particularly if you're managing tight cashflow. In a falling rate environment, you're locked in at a higher cost while variable borrowers benefit from reductions. Some investors split their loan between fixed and variable to balance certainty and flexibility. The investment loan options you choose should align with how much cashflow buffer you're holding and whether you expect rates to move.
Principal-and-Interest vs Interest-Only: What Works for Camberwell Investors
Principal-and-interest repayments build equity and reduce the outstanding loan balance with every payment, but they require higher monthly cashflow.
If your property yields 3.8 per cent net and your holding costs on a principal-and-interest loan exceed rental income by $1,200 per month, you need that amount available in your budget indefinitely. Interest-only reduces the shortfall but delays equity build-up, leaving you reliant on price growth to access funds for future purchases or to cover the eventual reversion to principal-and-interest. In Camberwell, where long-term capital growth has historically been solid, many investors accept lower yield in exchange for location and quality, then use interest-only terms to manage cashflow in the early years. The risk is that if growth stalls or repayments reset during a period of higher rates, the property can become a burden. Your repayment structure should reflect both your current income and your plan for the property over the next five to ten years.
Loan-to-Value Ratio, Lenders Mortgage Insurance, and Yield
Borrowing above 80 per cent LVR triggers Lenders Mortgage Insurance, which is capitalised into the loan and increases both your total borrowing and your repayment.
On a $700,000 purchase with a 10 per cent deposit, LMI might add $20,000 to $25,000 to your loan amount, lifting your borrowing to around $655,000. That additional cost increases your interest bill by roughly $2,200 per year at current rates, which further widens any gap between rent and repayments. If your net yield is already marginal, the LMI cost can push the property into unsustainable cashflow. A larger deposit avoids LMI and keeps your loan amount lower, but it also ties up capital that could be used for a second purchase or held as a buffer. The trade-off depends on your strategy. If you're focused on building a portfolio quickly and can service the higher repayment, paying LMI may be acceptable. If your priority is minimising out-of-pocket costs and stabilising cashflow, aiming for 80 per cent LVR or lower makes more sense.
Rental yield isn't the only measure of a property's value, but it's the one that determines whether you can hold the asset long enough to benefit from growth. Call one of our team or book an appointment at a time that works for you to discuss how different properties and loan structures perform under your specific circumstances.
Important: This does not constitute tax advice and it is recommended to seek advice from your Accountant or Financial Planner for your individual circumstances.
