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AU Units surging in popularity for investors in Sydney

Property Here - Thursday, August 15, 2013

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Property investor Nathan Birch has backed units for rental returns.

Property investor Nathan Birch has backed units for rental returns. Source: DailyTelegraph

AFFORDABILITY and lifestyle factors are behind a surge in popularity for units, which have overtaken houses in Sydney's west as ideal investment properties.

Units were once shunned by renters but a change in attitude has seen Australians abandon big houses and backyards for convenient locations and less upkeep.

"There was a time when units were seen as a necessity rather than a choice for a lot of people," said Shannon Molloy, deputy editor of Australian Property Investor (API) magazine. "Now, people want to live in nice, easy to maintain units that are close to transport or links to the city."

The increase in demand translates to money in the pocket for investors, with API uncovering 70 Australian suburbs where rental yields for units were higher than for houses; that is, the percentage of rent paid compared to the sale price is higher. Of the 28 in NSW, nearly all are in Sydney, where lack of supply plays a major role.

"Sydney's supply shortage puts upwards pressure on rents and people are forced to pay more as competition increases for those properties," said Mr Molloy. "On any Saturday, people queue outside the door at open homes for any available properties."

The top Sydney suburbs for unit investment are based in the west, where affordability attracts a large pool of tenants.

Mount Druitt units offered the best value for investors with rental yields of 7.51 per cent on a median price of $248,500, compared to yields of 5.49 per cent on houses.

Units in Leumeah yielded 7.03 per cent, while Macquarie Fields (7.01 per cent), Ingleburn (6.87 per cent), Auburn (6.62 per cent) and Blacktown (6.33 per cent) were also among the best.

Mr Molloy said yields of more than 6 per cent were often enough to make a property cash flow positive; in other words, the rent covers mortgage repayments and maintenance costs, with profit left over for investors.

"People are going further out to get more bang for their buck. The western suburbs are popular with new arrivals to Australia, young couples without kids and empty nesters," said Mr Molloy. "Younger Australians are also choosing to delay buying a house longer than their parents would have, so renting is popular and necessary for many Australians."

Property investor Nathan Birch owns a number of units in the Blacktown and Mount Druitt areas and prefers them to houses for a number of reasons.

"The rental returns are better and the capital growth is usually equal or better too," Mr Birch said. "Maintenance is also a lot easier, because the units are newer than the old fibro houses out here and you only have to worry about four walls and a roof. Buying into strata also minimises land tax exposure."

While certain suburbs have stigma attached to them, Mr Birch said he has not had any major issues with bad tenants.

"It is inevitable that you will have a couple of incidents, but I have had good property managers over the time," he said. "Over the last five years, the area has cleaned up dramatically and is continuing to improve."

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