Property investment terminology, benchmarking, and improving your return.

Getting your head around property investment.

If you’re a first-time investor, or you just want to better understand the lingo and investment performance measures, we’ve got you.

We’ve put together easy to understand stats, facts and figures that any savvy property investor should get familiar with. To make life as an investor even easier, we’ve included some actions you can take if your property is not measuring up plus opportunities to look for if it is.


By no means is this an exhaustive list of property investment terminology (we wouldn’t bore you with that). And don’t worry, you’re not going to be scored on your property investment knowledge. It’s all you need to get the gist of what’s, what, and we’re here to help when you need anything else.


The return on investment you can expect from your property as a percentage of the purchase amount or amount invested. You can find your expected gross (before tax) annual rental yield by considering the weekly rent amount multiplied by 52 weeks (one year), then divide by the purchase price of the property, and finally multiply by 100 to find the percentage.

For example, if you were to buy a property for $600,000 that will generate $500 rent per week, the gross rental yield calculation would look like this: Gross rental yield = (500 x 52) / 600,000 x 100 = 4.3%.

There are 2 types of rental yield: gross and net.
1. Gross yield is calculated through annual rental income and property value.
2. Net yield is calculated by including all expenses involved.

Cash flow

Cash flow is the amount of money you can pocket at the end of each month, after all operating expenses (including mortgage repayments) have been paid. If you spend less money than you earn, your cash flow will be positive. If you spend more money than you earn, your cash flow will be negative.

Rental income - all operating expenses (including loan payments) = Cash flow  

Gross rate of return

The gross rate of return is the total rate of return on an investment before the deduction of any fees, commissions, or expenses. The gross rate of return is typically quoted over a year.

Interest rate

The interest rate is the amount charged on top of the principal by a lender to you for the use of the loan. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR).

Offset account

An offset account is an everyday bank account that’s linked to your home loan. You can deposit your salary and savings into the account and the balance is then offset against the amount owing on your home loan. Because the offset account acts like an everyday account, your money is still accessible whenever you need it, even while it’s working to reduce your overall interest payments.

Negative gearing

Negative gearing occurs when the expenses associated with owning your investment property are higher than any income received from the property. While the long-term property investment goal is to make a capital gain, negative gearing can allow you to use your investment property expenses as a tax deduction.

Positive gearing

When the income received from your investment property more than covers the expenses associated with owning the property, this is called positive gearing. The profit made from owning the investment property is classed as taxable income, and so you will be required to pay tax on it.


The increased value of a property or other asset over time. Appreciation takes place for a number of reasons, including market trends, demand, improvements and upgrades.

Capital gain

The amount of money you gain through selling your property compared to your original purchase price. Your property is referred to as a capital purchase, and the increase in value is the gain. If you purchased your investment property for $600,000 and after 12 months you sell the home for $700,000, you have made a capital gain of $100,000.  

Capital gains tax

Capital gain or loss is the difference in the value of a property compared to its purchase price. If there is a gain, it is realized after the asset is sold. A short-term capital gain is one year or less; a long-term gain is more than a year. Both must be claimed on your income taxes, but short-term capital gains have a higher tax rate than long-term capital gains.


The decrease in value of a property or other asset over time. This is the opposite to ‘appreciation’. When an investment property depreciates it could be used as a tax deduction.


The difference between your property’s value and the amount owing on your property’s mortgage. If your property is valued at $600,000 and you owe $400,000 on your mortgage, then you have $200,000 in equity. This equity will increase as you repay the loan and/or as the value of your property increases. Your equity may be able to be leveraged for further purchases and loans as required.


There are different ways to measure the performance of an investment property. What you measure will largely depend on your investment strategy.

Gross yield

Measuring and benchmarking against gross yield is a general and simple way to understand investment property performance. We like it because it allows you to compare the investment across other asset classes like shares, term deposits, crypto etc.  

Oh no, unfortunately your investment property is not performing as well as it could be.  

Compared to investing in other low risk asset classes, this is a low return. You’re likely to still be getting the benefit of capital growth.  

what now?

At this return rate, here are some actions to consider:

  1. Improve your return by checking with your broker that your home loan interest rate is as good as you can get and make sure you have an offset account set up. Make sure maintenance is up to scratch, and that you are getting the highest amount of rent the market will tolerate at the next rent review.  
  2. Get a bank valuation and sales appraisal see how much you could sell the property for and look at other higher performing properties to invest in.

Congratulations, your investment property is performing well.  

Compared to investing in other low risk asset classes, this is a high return. Plus, with property you also get the benefit of capital growth on top.  

what now?

At this return rate, here are some actions to consider:

  1. Look at buying another investment property. You might be able to leverage the equity and your cash contribution may be lower or nothing at all.  
  2. Improve the return further - take the actions described in 'Less than 5%'
Please consult with a professional adviser for information about tax benefits, cash-flow implications and how a purchase might align with your wealth goals. This information is general only and does not constitute professional advice. You should always seek professional advice concerning your particular circumstances before acting.