For buyers looking to enter property investment, two key measures often guide decision-making: capital growth and rental yield. Both are important, but they serve different purposes and suit different investment strategies.

Understanding how these two measures work can help shape a stronger portfolio.

What is capital growth?

Capital growth refers to the increase in a property’s value over time. 

For example, imagine you had bought a property in Sydney five years ago at the then median dwelling value of $900,761. Fast-forward five years, and Cotality data shows your property would have increased in value by 34.4% to a median value of $1,210,222. That means your capital growth over the last five years was $309,461.

This type of return is generally realised when the property is sold. Investors focused on capital growth often hold property for several years, betting on long-term price increases rather than short-term income. Holding for the longer term also allows the property time to ride out short-term market fluctuations, benefit from infrastructure and population growth and potentially attract tax advantages such as the capital gains tax discount.

Several factors can influence capital growth, including location, scarcity, school zones, infrastructure projects and population growth. Areas undergoing gentrification or rezoning may also see sharper increases in value over time.

What is rental yield?

Gross rental yield is the income a property generates compared to its value. It’s usually expressed as a percentage. 

For example, suppose you own an investment property that is worth $1.2 million and generates $850 a week in rent, or about $44,000 a year. Its gross rental yield is roughly 3.7% (calculated by dividing the annual rental income by the property value, then multiplying by 100 to get a percentage). Yields can vary depending on location, property type and market conditions.

Gross rental yield is a useful measure for assessing how much income an investment may produce each year. This strategy appeals to investors looking for a regular income stream from their investment, which can be used to cover mortgage payments, ongoing expenses or simply provide a consistent passive income. 

Choosing between growth and yield

The decision of whether to prioritise capital growth or rental yield often depends on your financial goals and risk tolerance. Investors with a long-term outlook and sufficient income to cover any potential shortfalls in rental income might lean towards properties with strong capital growth potential. These are investors looking to build significant equity over time.

On the other hand, investors looking for immediate income or with a need to cover ongoing property expenses might lean towards properties offering higher rental yields.

It is also an option to balance the two. A property with steady capital growth and a respectable rental yield can provide both long-term wealth accumulation and a consistent income stream.

Ultimately, a successful property investment strategy involves careful research, clear financial goals and an understanding of how capital growth and rental yield contribute to overall returns. 

Using a mortgage broker to help

Consulting with an experienced mortgage broker, who can provide up-to-date market insights and tailored advice, is a good step for any potential investor.

A good broker won’t just help secure a loan – they take the time to understand an investor’s goals, whether that’s maximising rental income, targeting long-term capital growth or building a balanced portfolio.

Brokers have access to a wide range of lenders and loan products, which means we can recommend options that suit different strategies and financial situations. 

In a competitive market like Sydney, where good investment properties are often snapped up quickly, having a broker on your side can make a real difference. We can guide clients through pre-approval, compare rates and ensure finance is ready when the right opportunity comes along.

Thinking about your next investment? Speak with a mortgage broker who understands the Sydney market and can help you find the right loan to match your goals. Book a call with Clever Finance today.