Now the Sydney boom has passed, it’s no surprise investors are asking where they should put their money next.

There are still good fundamentals for those considering a blue chip buy in the eastern suburbs, but property buyers need to be more discerning about how they choose a location in this quieter part of the real estate cycle.

We’re seeing a lot of downsizers selling their redundant family homes, now the kids have moved out, and looking for smaller homes in the area. With the leftover money, they’re purchasing an investment property to put them in a great situation when they retire.

Regardless of whether you’re an experienced investor or a local just starting to build your portfolio, apartments in the inner-city are almost always a good option to consider. This is because vacancy rates in these inner areas tend to be lower and the return on investment is often relatively high.

For instance, Alexandria and Surry Hills both boast strong returns, with gross rental yields for apartments in excess of 4 per cent. Another area under high demand is Kingsford, with a 3.81 per cent apartment gross rental yield.

For capital growth, investors would be wise to consider the Kingsford and Kensington areas, which will benefit from the new light rail. There’s a strong correlation between new infrastructure and property price growth, so it makes sense that these rail stops, and the homes nearby, will be first considered by many investors.

The Kingsford area is also within an attractive distance of the University of New South Wales, the beach and medical facilities, making it perfectly suited to both young professionals and families. These same attractions mean the demand from tenants for the home should also be quite high, resulting in shorter periods of vacancy.

Another worthwhile investment location to consider is Potts Point, where rental yields are also above 4 per cent. The median apartment price in the suburb is $590,000, according to CoreLogic, which is a great price point for an investor, and the area has already seen 5.06 per cent capital growth in the past 12 months.

Just three kilometres from the CBD, it’s bread and butter blue chip real estate and suited to professionals, singles and students, with good public transport and, the Sydney winner, waterfront views from many properties.

As a rule of thumb, the more expensive the property is that you purchase, the lower the rental yield tends to be, so make sure you do a close analysis of your holding costs before diving in.

Already, rents have increased dramatically over the last 12 to 18 months in these locations and we are finding a direct correlation between these increased rents and the increase in sale prices.

Sydney’s east has predominantly avoided some of the higher density development activity being seen across the city, which has added to a relatively tight rental market that doesn’t seem to be slowing. Anything with close proximity to amenities, such as the top local schools, will continue to be popular with the upsizing market.

It seems likely that these locations will experience strong capital growth in future years, so it is worth keeping a close eye on these highly sought after enclaves.

Sydney’s Eastern Suburbs Market Snapshot 2016

Sydney’s Eastern Suburbs Market Snapshot 2016

A detailed annual assessment of the property market focusing on the Eastern Suburbs of Sydney, Australia.

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