Investment hotspots: Best rental yield in Australia

These are the suburbs with the highest rental returns in Australia, covering the mortgage and paying owners a salary on top. See where.

Tim McIntyre and Taylor Troeth

5 min read

May 25, 2024 - 5:00AM

Property

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It’s harder and harder to pay off a mortgage thanks to interest rate rises, but what if you bought a property that paid it for you?

And threw in some spending money on top?

That’s the reality for investors who have bought assets in some of Australia’s highest yielding markets.

An exclusive new report from Ray White has revealed there are suburbs in Australia with rental yields as high as 17 per cent, meaning the rent will cover your loan repayments, insurance, management costs and other associated expenses … and then pay you money on top. And Sydney investors need to stop focusing on their own backyards, with the best yields found in Queensland and Western Australia.

Suburbs with high rental yields are largely due to their links to mining projects and commodity prices says Jemima White, Ray White Data Analyst.

The research showed Australia’s best investment return is in the Victorian holiday town of Mallacoota, in the East Gippsland region. There, a median priced house costs $580,000, but will return more than $100,000 a year in rental income; a yield of 17.9 per cent, which works out to be rent of about $2000 a week and more than $100,000 a year.

After that it was the WA and Qld show, with the two states making up the remainder of the top 25 yielding suburbs.

Dolphin Heads in Qld was second on the list, with units yielding 17 per cent on a $111,500 purchase price. Next was Bucasia in the same state (16.5 per cent), while WA’s Baynton (16.3 per cent) and Coolgardie (16.2 per cent) rounded out the top five.

Then it was WA’s Tom Price (14.6 per cent), Qld’s Middlemount (13.5 per cent) and WA’s Kambalda East (12.3 per cent), Newman (11.8 per cent) and South Kalgoorlie (11.8 per cent) finishing the top 10.

AUSTRALIAN SUBURBS WITH DOUBLE DIGIT RENTAL YIELDS

Across both states, there were 35 suburbs with double digit yields. This was largely due to their links to mining projects and commodity prices, according to Ray White data analyst Jemima White.

“Commodity prices are continuing to shape rental and property prices in WA and QLD. The top 50 suburbs for rental yields are mining towns where weekly rents growth have outpaced price growth by an average 8 per cent over the past 12 months,” Ms White said.

Gross rental yields are calculated by dividing a property’s annual rent by the value and multiplying by 100.

A $300,000 property earning $500 rent a week ($26,000 a year), would have a gross rental yield of 8.7 per cent.

If a property’s rental return covers its mortgage repayments, plus other associated costs such as insurance, strata levies, council rates and so on, it is considered positively geared. As a general guide, this requires a yield of above 6 per cent.

Houses in Mallacoota offer the country’s best rental yield of 17.9 per cent.

Ms White said the suburbs with the higher yields were often more volatile and investors were exposed to more risk.

“These areas are risky due to the volatility of the nearby mines that can employ over 50 per cent of the rental population,” she said. “Sharp unexpected drops in commodity prices could force these nearby mines to shut, shedding staff which would bring down rental demand, which occurred in 2017.”

LOWER YIELDS BUT STABLE RETURNS

Far lower yields are par for the course in Sydney and much of NSW, where high value growth has made positive gearing unlikely, but returns are historically more stable.

“NSW and Victoria are presenting opportunities for longer-term growth investors due to historically low vacancy rates and high population growth, which will fuel further pricing and rental growth,” Ms White said.

Lakemba is the only Sydney suburb with a yield above 6 per cent. There a unit returns 6.2 per cent on a $402,000 median.

For regional areas of NSW, South Lismore has a yield of 9.9 per cent, North Lismore 9.1 per cent and Broken Hill 9 per cent.

Girards Hill (8.4 per cent), Moree (8 per cent), Lismore (7.9 per cent), Cobar (7.4 per cent), Berrigan (7.4 per cent), Lochinvar (7.4 per cent) and Boggabri (7.3 per cent) made up the top 10.

Investment adviser and Binvested founder Nathan Birch.

Property investor and CEO of B.Invested buyer’s agents Nathan Birch, accumulated significant wealth by buying positively geared properties at the affordable end of the market. He suggests investors should seek properties priced below market value, with upside for growth and a positive cashflow.

“Buying negatively geared is silly, but if you’ve got a property that is giving you $50 a week (after repayments) then you’re in a better position,” he said.

“If the bank says you can borrow $700k, why not buy three at $200k instead? If you’re buying three investment properties and renting them out, now you’re earning an extra $45k in rent a year and you’re able to borrow more.”

‘MAKE THE NUMBERS ADD UP’

Ciara McCarroll purchased a unit in Gaythorne in Brisbane for $280k, which is currently rented for $440 per week at a yield of 8.2 per cent.

She said making sure the numbers add up and finding the right property manager was important.

“It’s a different mindset when you’re investing, you’re looking at the numbers to see if it works with what the mortgage repayments will be and if the rent will cover everything. It doesn’t matter what it (the property) looks like if the numbers add up,” she said.

“Having a good property manager that has that in mind and keeps the rent at market value helps, as well as doing my own research on what neighbouring properties are going for.

Ms. McCarroll used B.Invested buyer’s agents, with the aim to leverage equity to expand her portfolio.

“It’s important to have the right team around you, it’s quite hard to do it by yourself so get advice from the people that do it every day,” she said.

Hayden Jamer and Ciara McCarroll are both investors who have purchased units in the last 12 months. Picture: Jonathan Ng

“You can still purchase properties in that lower range having the right strategy, and sourcing deals below market value gives you that opportunity to pull out equity.”

Hayden Jamer recently purchased his first investment property in Goodna in Brisbane for $265k.

The property rents for $400 per week, increasing to $430 in June; a yield of 8.4 per cent.

“It was a good opportunity at a good purchase price point that covers the mortgage and expenses and it doesn’t affect my lifestyle,” he said.

He chose the property for its proximity to Brisbane’s CBD.

“The rental market is crazy at the moment,” he said. “People are getting pushed out into further markets and looking regional because people can no longer afford to live right in the city. Work from home arrangements have been a big boost for that too.”