A few years ago, most property investors were happy to average a healthy three to four per cent yield on their investment assets. Today, five to six per cent yields are becoming the norm in popular markets particularly in the inner rings of major cities and along Australia’s coastline.

While I will always advocate capital growth over yield when making property investment decisions, yields are still very important for your cash flow. An across the board rise of one to two per cent is therefore very significant.

This change in average yields makes property investment even more compelling, along with the likelihood of steadily increasing prices over the next three to five years and the ‘sleep at night’ factor of bricks and mortar that many investors burned by the GFC are now seeking.

Yields have increased in recent years due to a very low supply of rental properties in a climate of very high demand. This has enabled landlords to maximise their rental returns.

When the First Home Owners’ Boost was around, rents were at historical peaks and it was one of the very few times in the 28 years I’ve been in real estate that buying became more financially viable for young Australians than renting. This is now changing as property prices and interest rates continue rising following a strong economic rebound last year.

Rental supply is slowly starting to build, with RP Data reporting a five per cent jump in supply in March. With more investors buying property in 2010, it was always anticipated that rental supply would increase slightly, but I believe it will be matched by ongoing strong demand due to population growth and lesser activity among first home buyers this year.

In short, we’re not about to see any major declines in rental prices in good markets.

If you’re in the market for an investment property this year, I can give you two very general rules of thumb to consider, no matter where you live or where you intend to buy your investment asset – get close to the cities or go to the beach.

It’s hard to go wrong with an inner city location within eight to 10km of the CBD, as long as it has good public transport and local community infrastructure such as a suburban shops, cafes and recreational facilities. As with all major capitals, there will be suburbs within this eight to 10km radius that you’d be better off avoiding due to things like industrial activity or excessive aircraft noise for example. As always, do your research and don’t buy into a suburb unless you have some real knowledge of that particular area.

Alternatively, head to the coastline – I’m talking anywhere within walking distance of the beach and surrounding cafes and CBD transport. In Sydney, this includes Cronulla in the south through to Palm Beach in the north, incorporating Maroubra, Bondi, Manly, Dee Why, Collaroy and Avalon. As you go further away from the city, what you lose in close CBD access you gain in proximity to beaches. This universal desire among Australians to be close to the water will keep your capital growth strong!

Some markets have it all and Bondi in Sydney is a great example. It’s an iconic beach suburb located 15 minutes from the CBD. Put these two factors together and it’s no wonder top end apartments there can command prices of $30,000 to $45,000 per sqm!

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.