Right now Australia is enjoying incredible property growth. According to Australian Bureau of Statistics “House prices rose by 6.8% in Australia’s eight major cities in 2014” [and] . . . 9.48% during 2013.

You want to take advantage of the current booming market by purchasing an investment property. What strategy should you adopt? Should you chase capital growth or choose an inexpensive rental yield property instead?

First, you need to understand what you want from your investment. Do you want to increase your current cash flow situation? Or would capital growth give you more for your retirement in the long run.

Second, you need to calculate what strategy will give you the biggest bang for your budget. For people who do not have a big budget, rental yield properties might be a wiser investment because it allows investors to get into the property investment market with less. Rental properties may be cheaper but because they are inexpensive, they also will not give you the same level of return as would a property that is purchased for capital growth.

Investor and author of The Investment Property Plan, Stephen Zamykal, gives this example:

“A $500,000 property with a high-rental yield of eight per cent and lower capital growth rate of four per cent will be worth $1,053,425 in 20 years’ time, with a rental income of $84,274. But the same property with eight per cent capital growth rate and a four per cent rental income will be worth $2,157,851 in two decades. “In 20 years’ time, by investing in the capital growth property, you have an asset worth $1.1 million more than the cash-flow property.”

If you can afford to forego the cash flow that a rental yield property would give you today, it might be more lucrative to go for capital growth in the long term. This is especially the case if you are investing in property as part of your long term retirement planning. However, you need to have a healthy financial portfolio that would allow you to hold a negatively geared investment property for the length of time needed to get its true value.