Property investors

Gross rental yield is annual rent divided by the property's purchase price, expressed as a percentage. Example: $500/week rent equals $26,000 per year. On a $650,000 property, that's a gross yield of 4.0%. Net yield subtracts running costs (strata, rates, insurance, agent fees, maintenance) and is typically 1.5-2% lower.

Negative gearing lets you deduct the loss on an investment property (rent minus expenses including interest) against your other income, reducing your tax bill. Example: a property loses $15,000 per year on a cash basis. At a 37% marginal rate, you save $5,550 in tax, so the after-tax loss drops to $9,450. The strategy is only worth it if you expect capital growth to outweigh the holding cost over your hold period.

Individual investors (and most trusts) who hold an investment property for more than 12 months only pay CGT on 50% of the gain. Example: a $200,000 capital gain becomes $100,000 of assessable income. At a 37% marginal rate, the tax is $37,000 — effectively 18.5% on the original gain. The discount doesn't apply to companies or property held less than 12 months.

Depreciation lets investment property owners deduct the wear-and-tear on the building and its fixtures against rental income. The building itself (capital works) depreciates at 2.5% per year for 40 years if constructed after 16 September 1987. Plant and equipment (carpets, blinds, appliances, hot water systems) depreciates faster on individual schedules. A quantity surveyor report (around $700-$900) is required to claim the full schedule.

Both matter, but they're usually in tension. High-yield suburbs (over 5%) tend to be regional or low-growth metro areas; low-yield suburbs (under 3%) tend to be capital city inner rings with stronger long-term growth. The right balance depends on your cash flow position, your hold period, and your marginal tax rate. Most investors aim for a balanced 3-4% gross yield in a suburb with credible 5%+ annual growth.

Roughly: mortgage interest (currently around 6.5% on investor loans), council rates ($2,000-$5,000), insurance ($1,500-$3,000), property management (7-10% of rent), maintenance (1% of property value as a rule of thumb), and strata if applicable ($3,000-$8,000 a year). For a $700,000 property on an 80% loan, you're looking at $45,000-$55,000 in annual holding costs before rental income offsets it.

Most individual investors hold in their own name (or jointly with a spouse) because they get the 50% CGT discount and can negative-gear losses against personal income. Discretionary trusts give flexibility on distributing income but lose the ability to distribute losses. Companies don't get the 50% CGT discount and are usually a bad structure for residential property. Always get specific advice from a property accountant before choosing.