Avoid These 5 Rental Yield Mistakes in Randwick

A rental yield figure on its own tells you almost nothing about whether a property stacks up as an investment.

You need to know what sits behind that number, what the lender will actually count as rental income, and how the borrowing structure affects your cash flow once the loan settles. Investors in Randwick often look at gross yield without factoring in body corporate fees, periods without tenants, or the difference between what a property could rent for and what a lender will use to assess serviceability.

Mistake 1: Using Gross Yield Without Checking What the Lender Counts

Gross yield is the advertised rent divided by the purchase price. Lenders do not use that figure to assess your loan.

Most lenders apply a rental income shading of 20 per cent, meaning they assess serviceability using only 80 per cent of the market rent. Some lenders shade rental income by more, particularly if the property is located in an area with a higher vacancy rate or if you are borrowing at a high loan to value ratio. A two-bedroom apartment in Randwick advertising rent of $800 per week gives a gross yield of around 5.2 per cent at a purchase price near the current median. The lender will assess your application using $640 per week, which changes the serviceability calculation and may reduce the borrowing capacity available to you, especially if you are also holding other debt.

If the property has periods without a tenant, you still need to cover the loan repayment, body corporate fees, council rates and insurance from your own income. Lenders assess your ability to service the loan during a vacancy, not just when rent is coming in.

Mistake 2: Ignoring Body Corporate Fees in Your Cash Flow Calculation

Body corporate fees in Randwick can range from $1,500 to over $5,000 per year depending on the age of the building, the number of units, and whether the complex includes a pool, lift or concierge.

Those fees are not deductible from the rent for serviceability purposes, but they reduce your net cash position every quarter. Consider an investor who purchases a one-bedroom apartment near The Spot with a loan amount of $650,000 on an interest-only basis at current variable rates. If the rent is $600 per week and body corporate fees are $1,200 per quarter, the investor is paying close to $5,000 per year in strata levies alone. Add council rates, insurance, property management fees and loan interest, and the property may be negatively geared by $10,000 or more each year. That loss can be offset against other income under current tax rules if the property was held or contracted before 12 May 2026, but you still need the cash flow to cover the shortfall each month.

If body corporate fees increase after settlement due to building work or a special levy, your cash position worsens without any change to the rent.

Mistake 3: Choosing Interest-Only Repayments Without Understanding the Refinance Risk

Interest-only loans reduce your monthly repayment during the interest-only period, which can improve short-term cash flow for a negatively geared property.

The risk is that at the end of the interest-only period, typically five years, the loan reverts to principal and interest repayments. Your repayment increases, and if you want to extend the interest-only term, you will need to apply to refinance. The lender will reassess your serviceability at that time using your current income, current rental income shading, and the loan balance that has not reduced. If your circumstances have changed, or if lending policy has tightened, you may not qualify for another interest-only term. Some lenders will also apply a higher interest rate to interest-only loans, particularly for investment properties, which increases the cost of borrowing over the life of the loan.

If you plan to hold the property long-term and build equity through capital growth rather than paying down the loan, an interest-only structure may suit your strategy. If your goal is to reduce debt or you are approaching retirement, principal and interest repayments from the start give you a clearer path to owning the property outright.

Mistake 4: Overestimating Rental Income Based on a Single Listing

A property advertised at $750 per week does not mean it will rent for that amount, or that a tenant will stay for the full year.

Lenders and valuers use comparable rental data from recently leased properties, not asking prices. Randwick has a mix of older walk-up units near the hospital, renovated apartments closer to the beach, and period-style blocks around the town centre. Rental ranges vary by location, condition and proximity to transport. If you are relying on a rental figure provided by the selling agent, check it against recent leases in the same street or building. A vacancy period of four weeks per year reduces your annual rental income by nearly 8 per cent, which has a material impact on net yield once you account for the costs you still pay while the property is empty.

Vacancy rates in Randwick are generally low due to demand from hospital workers, university students and young professionals, but a property that requires work between tenants or is priced above market rent will sit empty longer.

Mistake 5: Not Factoring in the Loan Structure When Comparing Properties

Two properties with the same gross yield can perform very differently depending on the deposit required, the interest rate you can access, and whether the lender will allow you to borrow the full amount.

A property priced below $600,000 may allow you to borrow with a lower deposit, but if it is a studio or has limited appeal to long-term tenants, the rental income may be less stable. A property priced higher may offer a stronger rental return in dollar terms, but if you need to borrow more than 80 per cent of the purchase price, you will pay Lenders Mortgage Insurance, which adds several thousand dollars to your upfront cost. That cost is not claimable as a deduction in the year you pay it. Investors often compare properties on rental yield alone without considering how the investment loan structure affects the actual return once you account for interest, fees, and the opportunity cost of the deposit.

If you are refinancing an existing property to access equity for a second purchase, the amount you can release depends on how much equity is available and whether your income supports the additional borrowing. A mortgage broker can structure the lending to make sure the equity release and new loan work together without overextending your serviceability.

Rental yield is one input in an investment decision, not the whole picture. Understanding how lenders assess rental income, how your loan structure affects cash flow, and what the property will actually cost to hold each year gives you a much clearer view of whether the numbers work. Call one of our team or book an appointment at a time that works for you.

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