Narrowing down the best apartment investment in Melbourne

With housing finance more available it's no great surprise that new Australian Bureau of Statistics housing finance data shows increased investor activity in the Australian property market.  It's a good time to buy an investment property, but it is important to be sure it will pay its way.

A good starting point is to consider the rental yield – that is, a property's annual rental as a percentage of the purchase price.  So, for example, a property costing $300,000 and renting for $9,000 a year would have a gross rental yield of 3%.  Generally, the higher the rental yield the better the property's return.

While the right house in the right suburb can bring a good rental yield, REIV sales and rental data over the 12 months ending September 2013 show that the highest rental yields are usually for one-bedroom or two-bedroom apartments.  In fact, the top three investment options in Melbourne are all for one-bedroom apartments.

The average rental yield for a one-bedroom apartment in Melbourne is 5%.  For a two bedroom apartment it is 4.4%.  But buying a carefully selected apartment in an in-demand suburb can mean a yield far exceeding the average.

Melbourne's top investment option is a one-bedroom apartment in the popular inner city university suburb of Carlton, with its current return an average gross rental yield of 8.3%. But it is not always the inner-city which brings the highest returns – illustrating a the importance of research.

The REIV data shows Melbourne's second best investment option  for the 12 months is affordable outer suburban Noble Park at 7%, where the median price of a one-bedroom apartment is just $155,000. So, three could be bought for the price of just one in Melbourne city, where the median was $481,500, offering the third-highest yield at  6.5%.

All this information and much more detail is available free on the REIV's regularly-updated website.  Go to reiv.com.au/BedroomMedians to find bedroom medians, median rents, yields and capital growth data.