What Type of Property Should You Buy?

A Look at Recent Sydney Market Coverage

Jeremy shares that he was recently interviewed by Channel 9 for a segment on Sydney's toughest markets for buyers and renters, covering high interest rates, high prices, and chronically low vacancy rates. He notes that some suburbs analysed, such as St Peters, saw rental growth as high as 20% over the past 12 months, well above the nationwide average of around 13% for houses and units combined over the same period.

Jeremy also mentions being approached separately by a PR company representing CrowdProperty.com.au, a platform that helps fund small-scale developers (for example, someone building a few townhouses) by pooling investor capital, similar to a fixed-term deposit paying around 8.5% interest, with the developer borrowing those funds and repaying investors once the project is complete.

Damien raises a LinkedIn article Jeremy had seen, where someone claimed a Sydney property was a standout capital growth performer, having sold recently for $6.7 million after last selling for $1.25 million around 25 years earlier (implying roughly 6.9% annual growth). Jeremy explains he compared this to relevant benchmarks: the property did outperform the Balmain East median over the same period, but underperformed the broader Inner West local government area, Sydney, New South Wales, and the national growth rate, beating only one of five relevant benchmarks. He notes this kind of framing is common in property marketing, and that it's also worth checking whether a property's apparent gains reflect renovations or value-adding work rather than genuine market-driven capital growth.

Residential Property

Damien and Jeremy note that residential property, houses and apartments, is the most common property type and the one most investors start with. Its key advantages include being intuitive to understand (since everyone has direct experience with where they'd want to live), strong underlying demand, low vacancy rates, and low stock-on-market levels in many areas. Jeremy adds that residential property also benefits from the largest volume of available data, which supports more confident, data-driven investment decisions compared to other asset classes.

Commercial Property

Commercial property, covering offices, retail, and industrial spaces, typically offers higher yields and longer lease terms, but is harder to research using the kind of metrics available for residential property, such as stock-on-market data. Instead, investors need to understand the specific industry or business type likely to occupy the space. Vacancy risk is also more significant in commercial property, since a space can sit empty for an extended period, in contrast to residential property, where re-tenanting is typically much faster. Commercial investment often suits investors who've already built wealth through residential property and are now looking to increase portfolio yield, generally requiring a stronger cash position and facing stricter lending conditions.

Real Estate Investment Trusts (REITs)

A REIT is a trust that invests in real estate, where investors hold "units" (akin to shares in a company) rather than owning individual properties directly. Unit holders benefit from payouts and potential increases in unit value, with a fund manager purchasing property on their behalf. This structure allows investors to gain real estate exposure without needing a large deposit for an individual property. Many REITs are listed on the ASX and often invest in commercial or large-scale development projects.

Vacant Land

Buying a block of vacant land carries higher supply-side risk, since large tracts of undeveloped land nearby can continue to be released for years. Jeremy notes this risk can be reduced somewhat by purchasing an already-registered block in a more established area, though there is often a lead time (potentially 18 to 24 months) before a newly purchased block is registered and ready to build on, and construction costs and trade shortages add further complexity.

The hosts explain the concept of land-to-asset ratio using a comparison: a $600,000 brand-new house-and-land package might consist of a $200,000 block and a $400,000 dwelling (a 33% land-to-asset ratio), while an established property of the same value might have a $400,000 land component and a $200,000 dwelling (a 67% ratio). Over a decade, assuming both land components double in value, the established property (with more land, which appreciates) ends up worth $900,000, compared to $600,000 for the new build (where the dwelling depreciated as the building aged), a $300,000 difference purely due to the land-to-asset ratio.

Vacant land also has downsides: it doesn't generate rental income while undeveloped, and can't be used to claim expense deductions like council rates or loan interest in the way an income-producing property can (Damien recommends consulting a tax accountant on the specifics). Jeremy shares that his own parents purchased vacant land near Port Stephens around 45 years ago hoping for a rezoning that never eventuated, illustrating the risk of holding vacant land purely speculatively ("land banking") without a clear growth driver.

Dual Occupancy Properties

Dual occupancy properties, such as duplexes, allow an investor to generate two separate rental income streams from one property, which can support higher yields and reduce vacancy risk (since one tenant remaining reduces the impact if the other moves out). Considerations include the cost and feasibility of converting an established property into a dual occupancy dwelling, comparing this against alternatives like adding a granny flat, and understanding how easily the property could later be resold, since appeal to the broadest range of future buyers matters. Jeremy also notes a specific supply risk with dual occupancy: while an established single-title house in a built-up area faces limited risk of new supply nearby, an area that sees many established homes converted into duplexes or townhouses can experience localised oversupply.

Holiday Rentals and Short-Term Accommodation (Airbnb)

Short-term rental properties can generate higher rental income, particularly during peak seasons, and offer the flexibility for owners to use the property themselves at times. However, lenders typically require an established income history (often around two years) before factoring that income into serviceability assessments, and income can be less consistent than standard long-term tenancies. Damien and Jeremy also note that some councils are introducing restrictions on short-term rental duration, partly in response to already-tight vacancy rates, and that these properties can involve more maintenance, including turnover cleaning between guests.

Renovation Projects

Renovation strategies range from simple cosmetic updates (new paint, carpet) to significant structural additions like a second storey or extension. The hosts caution that a modest cosmetic renovation is unlikely to meaningfully increase a property's value on its own, and that larger "renovate and flip" projects require realistic budgeting and awareness of the disruption involved, including whether the owner needs to move out temporarily, an added cost to factor into the numbers.

Land Subdivision and Development

Development, buying land to subdivide or build new, can be profitable, but often only for investors who get in early in a land release, since prices for remaining blocks tend to rise as a release progresses. The hosts suggest evaluating the numbers carefully (land cost, build cost, expected resale value based on recent comparable sales) and building in a solid buffer before proceeding. This strategy also ties up capital and flexibility for an extended period, which may conflict with other near-term plans, such as purchasing an owner-occupied home, and can be affected by interest rate changes during the holding period.

Student Accommodation

Student accommodation, renting per room close to a university, can generate higher yields since income is earned per tenant rather than for the whole dwelling. However, standalone studio-style student accommodation can be viewed unfavourably by lenders and tends to appeal to a narrower resale market, often limited to other investors. The hosts caution that a heavy focus on cash flow in this category can come at the expense of capital growth, sharing that clients who've purchased studio-style student accommodation have often seen limited capital growth over time.

Real Estate Crowdfunding

Platforms like DomaCom and BrickX allow investors to purchase a small fractional share of a property alongside other investors, with a manager overseeing the purchase and management of the underlying asset. This lowers the entry barrier for investors without a full deposit, but comes with reduced control over the property and, in many cases, limited or no ability to use leverage compared to owning a property outright.

Closing Thoughts

Damien and Jeremy summarise their overall preference for simplicity: buying an established house (rather than a unit, since houses have historically outperformed units) in a built-up area with limited risk of future oversupply, and holding it long-term. They describe this as requiring minimal specialised expertise, provided the investor has time on their side, and note their priorities are strong capital growth, supported by reasonable cash flow, while minimising risk.

On common beginner mistakes, Damien notes he's seen a wide range of outcomes among clients who've purchased studios, high-rises, and off-the-plan properties, some have performed well simply by buying near where they lived, while others have performed poorly. He emphasises that it typically takes several years of ownership to know whether a property has genuinely been a good investment, and that buying during a market upswing improves the odds. Jeremy notes that a deeper discussion on marketing pitfalls to watch out for will follow in a future episode.