With the rental crisis worsening around Australia, many families are being forced to move out of their current suburbs in search for cheaper rent. However, did you know that there are suburbs in Melbourne with rental yields of just over 1%?

So you might be wondering, what is rental yield? Rental yield represents the percentage of income generated by the property relative to its cost or value. In simple terms, rental yield measures the annual rental income as a percentage of the property's purchase price or market value.

Here is an example for calculating gross rental yield.

Let’s say Property A receives $500 per week in rent, and is worth $800,000. The gross rental yield is: 

$500 x 52 ÷ $800,000 x 100 = 3.25%

In comparison, Property B also receives $500 per week in rent, but is worth $1,000,000. The gross rental yield for Property B is: 

$500 x 52 ÷ $1,000,000 x 100 = 2.6%

You can see that even though both properties are generating the same rental income, Property A has a higher rental yield because it is worth less than Property B.

Let’s take a look at the suburbs with the lowest rental yields in Melbourne. 

Table 1. Suburbs with Lowest Rental Yields in Melbourne - Houses

Source: https://www.htag.com.au/

Table 2. Suburbs with Lowest Rental Yields in Melbourne - Units

Source: https://www.htag.com.au/

According to HtAG, the houses with the lowest rental yields in Melbourne are located in Balwyn. Tenants in Balwyn could be renting a house worth $3,000,000 whilst only paying $666 per week in rent. For units, the suburb with the lowest rental yield is Brighton, where tenants can rent units worth $1,400,000 whilst paying less than $600 per week. These rental yields are significantly lower than the median rental yield in Melbourne, which is 3.96% for units, and 2.25% for houses.

So what does this all mean for you? If you are currently renting in a suburb with low rental yield and looking to buy a property in the same suburb, you may want to reconsider, as your mortgage repayments are likely to be significantly higher than the rent you are currently paying. Instead, you may opt to rent in the suburb you live in and buy an investment property instead. This means that instead of being limited to the suburb you live in, you will be able to choose from properties Australia wide, enabling you to secure the best investment possible which will yield you the highest returns.

This will depend on your individual circumstances, so be sure to crunch the numbers first to work out the best strategy for you. To find out your borrowing capacity, have a chat to your mortgage broker. If you are not sure if property investing is right for you, feel free to contact me at elizabeth@currallieproperty.com and I would be happy to provide you with some guidance.