Waterloo Tops Inner Sydney Yields at 3.7%

Waterloo leads Sydney's City and Inner South on long-term rental yield at 3.7%, while the most prestigious postcodes sit closer to 2.6%. That spread is wider than the gap between short-term rental and long-term rental at the city-wide level, which means where you buy inside this submarket matters more than how you choose to rent it out. This ranking shows the suburbs leading on gross yield and explains why the pattern looks the way it does in one of Australia's most expensive housing markets.

Waterloo and the Top-Yielding Suburbs by Rental Return

Gross yields = annual income / sale price. Based on 3-bed house medians. The dashboard shows every property type and bedroom count.

Note: short-term rental figures assume the Greater Sydney 180-night cap on non-hosted properties. The cap limits investment-property short-term rental to roughly half a typical year, which is why short-term yields look closer to long-term yields than they would in uncapped markets.

Top Suburbs Lead Because Lower Entry Prices Sit Beside Strong Tenant Demand

Waterloo sits at the top of the ranking with a gross yield of 3.7%, driven by an entry price of about $1.55m that is well below the submarket median of about $2.16m. Waterloo is a high-density urban renewal precinct south of the Sydney CBD with light rail and bus access into the city, the Green Square redevelopment on its doorstep, and a deep tenant pool of professionals and students. The combination of relatively contained land prices for an inner-city postcode and high white-collar rental demand is what produces the headline yield number.

Acacia Gardens follows at 2.8%, with an entry price of about $1.41m and weekly rent around $770. Arncliffe - Bardwell Valley ranks third at 2.7%. The pattern is consistent across the top of the ranking: yield concentrates where prices are still measurable in the lower millions and rental demand is anchored by transport access and employment proximity rather than postcode prestige. Waterloo is more of a long-term rental suburb than a holiday destination, so the long-term rental column is the relevant comparison there. The 180-night cap on Greater Sydney short-term rentals also flattens the short-term advantage that operators in less-regulated markets enjoy.

The Yield-Price Trade-Off Is Stark in This Submarket

The relationship between price and yield in inner Sydney is the cleanest version of the rule that exists in Australian property: every dollar added to the entry price erodes the rental yield, because rents do not climb in lockstep with prices in established suburbs. Eastlakes commands about $1,100 a week in rent, roughly 1.5 times Waterloo's rent, but the entry price is about $2.20m, more than double Waterloo's about $1.55m. The result is a yield gap of around 1.4 percentage points between the top and bottom of the ranking.

An investor entering at about $1.55m in Waterloo versus about $2.16m at the submarket median, or about $2.20m in a premium suburb like Eastlakes, faces a very different capital-risk profile. The premium-postcode buyer is paying for the prospect of capital appreciation, scarcity of land, and lifestyle amenity. The yield-focused buyer is taking the income now and accepting that growth in places like Waterloo is more dependent on continued urban renewal momentum than on the established blue-chip pull of suburbs further east.

View Sydney City and Inner South in the dashboard →Free preview · every bedroom count and property type

What the Yield Ranking Does Not Show

A high yield can mean depressed prices, not strong rents. Waterloo's yield reflects an entry point that is below the prestigious eastern and harbour-side suburbs, but the suburb has experienced significant new apartment supply that puts a ceiling on rent growth. The yield-leader headline conceals the fact that capital growth in established premium pockets has historically outpaced the income gap, and total return (rent plus appreciation) often favors the suburbs sitting near the bottom of this ranking. Inner Sydney is, at the city level, a textbook appreciation play where investors accept lower running yields in exchange for long-run land-value growth.

The table also says nothing about vacancy risk, tenant quality, or the depth of the rental pool in any specific suburb. Median data lags fast-moving markets. And the short-term rental column assumes the Greater Sydney 180-night cap applies in full, which it does for non-hosted investment properties; hosted arrangements and exempt categories sit outside the cap. Check state/council regulations for specific requirements.

How This Submarket Compares to NSW and the National Picture

Sydney's City and Inner South sits below the New South Wales median yield of 3.7% by 1.3pp, and below the national median of 4.0% by 1.6pp. The submarket median sale price of about $2.16m is 117.6% above the NSW median of about $992,000 and 159.0% above the national median of about $833,000. The submarket sits at roughly 2.6 times the national median price, so even the highest-yielding suburb on this list, Waterloo at 3.7%, lands close to the national median yield rather than above it. This is the trade-off Sydney investors accept: the income yields are modest by Australian standards because the entry prices are not.

Negative Gearing and Tax Treatment Tilt the After-Tax Picture

For a high-priced, low-yield submarket like Sydney's City and Inner South, the tax treatment of rental losses changes the after-tax position. Negative gearing allows a rental property running at a cash-flow loss to offset that loss against salary or wage income, reducing taxable income. With entry prices of about $2.16m and gross yields of 2.4%, mortgage interest plus operating costs comfortably exceed the rent on most properties in this submarket in the early years of ownership. The resulting tax loss is what generates the offset.

The benefit scales with the investor's marginal tax rate. At the top bracket of 45% (income above $190,000), every $1 of rental loss reduces tax by 45 cents. At the 37% bracket (about $135,000-$190,000) the saving is 37 cents per dollar of loss, and at the 30% bracket ($45,000-about $135,000) it is 30 cents. A $25,000 annual rental loss therefore translates into around $11,000 of tax savings at the top bracket, about $9,300 at the 37% bracket, and $7,500 at the 30% bracket. Both long-term and short-term rental can be negatively geared if interest plus deductible costs exceed rental income; whichever strategy generates a tax loss qualifies for the offset, and which one that turns out to be depends on the specific financing, costs, and gross rents on the property.

Capital works deductions may also apply at up to 2.5% per year on eligible construction expenditure, depending on building age, construction history, and a quantity surveyor's depreciation schedule. Fixtures and fittings such as air conditioning, carpets, and appliances may add further non-cash deductions. The capital gains tax discount of 50% applies to properties held for more than twelve months, equally to short-term and long-term rental. The dashboard calculates your after-tax position including negative gearing and depreciation based on your income, enter your salary to see how the tax treatment changes the comparison for your tax bracket.

For a contrasting Sydney submarket where yields are higher and entry prices lower, see comparable analysis for the Eastern Suburbs. For full data sourcing and definitions, see the data sources and market score methodology.

Data reflects market conditions as of May 2026.

This information is for educational purposes only and should not be considered financial or legal advice. Regulations and market conditions change frequently. Verify current rules with local authorities before making investment decisions.