Australian property investors face three big questions. Metro or regional? Capital growth or cashflow? Houses or units? 

If you’ve decided you want to invest in locations offering some of the best rental yields in Sydney, you’ve obviously decided to go metro rather than regional. But you might not realise that you’ve also chosen:

• Cashflow over capital growth – because the high-rental-yield suburbs in Sydney (i.e. those offering cashflow) and the fastest-growing suburbs in Sydney (i.e. price growth) are rarely the same suburbs. In other words, you tend to get rental yield at the expense of price growth.

• Units over houses – because Sydney units generally have higher yields than Sydney houses. In April 2022, average yields were 3.6% for Sydney units and 2.3% for Sydney houses, according to SQM Research.

Suburb Help is agnostic on whether to choose metro or regional, but generally believes investors should favour capital growth and houses over cashflow and units.

But if you’ve decided you want to invest in the best-value suburbs in Sydney in terms of yield, you’ve clearly got a different strategy. In that case, rather than looking at the Sydney property market as a whole, you need to get more local. That’s because, if we look at SQM Research data from April 2022, we can see that rental yields vary widely from region to region:

• Sydney CBD = 4.6%
• Central Coast = 4.3%
• Blue Mountains = 4.0%
• Eastern Suburbs = 3.9%
• Lower North Shore = 3.9%
• Parramatta = 3.9%
• Western Sydney = 3.8%
• South Western Sydney = 3.6%
• St George = 3.6%
• Canterbury-Bankstown = 3.6%
• Upper North Shore = 3.6%
• Wollongong = 3.6%
• Inner West = 3.5%
• Hills District = 3.5%
• Sutherland Shire = 3.4%
• Liverpool = 3.2%
• Northern Beaches = 2.9%

A word of warning: if you want to invest in the best-yielding suburbs in Sydney, it would be wrong to automatically conclude you should buy a unit in the Sydney CBD region, just because, as of April 2022, it topped the list of rental yield Sydney suburbs. Here’s why:

• Those region-by-region figures are broad averages that cover numerous properties at a range of price points. If your budget was, say, $800,000, you might find another region was offering higher yields at that price point than Sydney CBD.

• Even if your strategy is to focus on cashflow, you shouldn’t disregard price growth altogether. If Location A is offering a slightly higher yield and much lower growth while Location B is offering a slightly lower yield and much higher growth, it would probably be best to favour Location B.

Even though Sydney CBD topped the list in April 2022, that doesn’t mean it always has and always will provide the best rental yields in Sydney. For example, if we go back to January 2021, we can see that Sydney CBD ranked ninth out of the 17 Sydney regions (at 3.5% yield), while Central Coast ranked first (at 4.8%). So rather than focusing on a single moment in time, you should look at how different regions have performed historically, and use that – along with other data points – to forecast how they will perform in the decades ahead.