Latest data from the Australian Bureau of Statistics shows that in July this year alone, the value of investor housing purchased for rent or resale rose by $177 million over the previous month, a hefty jump of 1.9 per cent in just 31 days.

"And nearly 60 per cent of that lending to investors is coming into NSW, which is the Sydney market," says Domain Group chief economist Dr Andrew Wilson. "The investor share of NSW residential lending is now 56.5 per cent."

Spending by investors dropped sharply last year as a response to mooted changes to negative gearing, higher investor interest rates and tighter lending conditions imposed by the Australian Prudential Regulation Authority (APRA) following concerns that there was too much investor activity in the market.

"But there's been a ... surge of investors since May this year," Dr Wilson says. "I think there was underlying demand for investment properties and there's been a fear of missing out. Numbers are now up to what they were before the peak of the market with investors looking towards higher yielding, low-priced properties."

The best prospects are always to be found close to transport, schools and amenities such as shops and parks, says Fife Capital development director Mike Wiseman. "I think prices are pretty high both for new developments and existing product closer in to the CBD at the moment, but there's still some price growth to go, so those areas shouldn't be ruled out," he says.

Mortgage broker Justin Doobov of Intelligent Finance recommends the eastern suburbs, inner west and lower north shore as there's still  plenty of demand there from potential tenants, despite relatively high prices. "Clients say to me, 'Isn't it over-valued?' But continuing demand from people to live there means there will always be good rents and capital growth," he says.

Fringe areas of the city shouldn't be overlooked either, believes Aris Constantinidis of First National Real Estate. Suburbs such as Ultimo, Pyrmont, Chippendale and Glebe have big rental markets, and lots of new development.

"A lot of those areas have extremely low vacancy rates," he says. "And a lot of new development around Ultimo, for instance, is bringing new life to the area."

Investors should look at apartments and houses, recommends Georgia Cleary, director of agents BradfieldCleary. "Tenants can be of all ages and stages of their life," she says. "One or two-bedroom apartments are very easy to rent and are probably the most popular investment, but families might like houses. And they're all good as long as they're in proximity to transport, parks, cafes, shops."

The lower north shore in particular is popular because of those fundamentals, says Clare Rutledge of Urban Living by LJ Hooker. "Rental returns are about 3.8 per cent – gone are the days of 5 per cent – but you're looking also for capital growth," she says.

"Small blocks of apartments tend to be preferable, and one-bedroom apartments are very popular. There are a lot of people wanting to rent by themselves and don't want to deal with flatmates!"

Investors are also active in the western suburbs. Starr Partners chief executive Doug Driscoll says they now make up almost half the number of all buyers. "APRA spooked them but they're all now trying to spot 'the next big thing'," he says.

"There's so much infrastructure proposed, the west has some solid buying." 

Top investment picks

Eastern suburbs, inner west, lower north shore – Justin Doobov, Intelligent Finance.

"There's a lot of demand 5-15 kilometres from the CBD. The more money people have, usually the closer they want to move. People love the lifestyle of those areas."

Close to the CBD – Mike Wiseman, Fife Capital.

"These areas are always very resilient. If prices do ever drop, they'll certainly drop less in these places."

Edgecliff, Paddington, Double Bay, Potts Point – Georgia Cleary, BradfieldCleary.

"There are a lot of people looking to rent who want to be in those areas, with great restaurants, transport and the possibility of walking to the city."

Ultimo, Pyrmont, Chippendale, Glebe – Aris Constantinidis, First National.

"They all have a big rental market, with lots of students, an enormous amount of demand and an undersupply of property. There are some good developments going on."

Neutral Bay, Milsons Point, Cremorne, Mosman, Cammeray – Clare Rutledge, LJ Hooker.

"It's only a short trip into the city and there's great train and ferry access."

Parramatta and its neighbours – Mike Wiseman, Fife Capital.

"Prices are lower as you move further west and although Parramatta has huge supply, there's so much infrastructure investment coming online over the next five to 10 years to those areas, they will be transformed."

Blacktown – Justin Doobov, Intelligent Finance.

"Further west there's some good buying, as well as the potential to add value by subdividing and building granny flats for additional rental income."

Penrith, Parramatta, Blacktown – Doug Driscoll, Starr Partners.

"The Penrith area is subject to so much redevelopment, Parramatta is going from strength to strength and people are starting to buy all kinds of property in Blacktown, too."

Patience will be rewarded

Investor Jenny Jang believes Ultimo is the next investor hot spot.

Successful property investor Jenny Jang feels she's cracked the code to finding investments that will provide a good flow of revenue, and show plenty of capital growth by the time she wants to sell.

"My husband Peter and I don't have children so I regard my properties as my children and they have proven to be very good to us," says Jang, a beauty therapist.

"If you have patience, and take care in your decision, real estate in Sydney will always reward you."

Jang has just bought two one-bedroom apartments with studies in the new $300 million 210-apartment development New Life/Ultimo, which will be built in Harris Street opposite the Ian Thorpe Aquatic Centre. She liked it mostly because it's so close to the light rail station at Exhibition Centre with lots of buses and The Goods Line pedestrian route from Central station.

"You definitely need to be near the light rail or a station, buses or ferries," she says.

"And having sources of likely tenants in the area, like a university, a college or training institute is one way to make sure your investment property will always be in demand."

Jang, who has salons Madame Jenny Beauty in both Pyrmont and Waterloo, recommends investors to keep an eye on areas that are undergoing steady gentrification. She believes Ultimo will be the next suburb to capture minds and hearts, hastened by the TWT Property Group's New Life/Ultimo.

"Pyrmont has undergone a massive transformation, from an undervalued semi-industrial suburb into a highly prized residential area," she says. "Ultimo adjoins Pyrmont and is already on its way to becoming a valuable suburb. A lot of people will want to live there."

Feature property:

22/136 Darlinghurst Road, Darlinghurst

22/136 Darlinghurst Road, Darlinghurst
Guide: $750,000

A possible investment property in the eastern suburbs. Tick. A one-bedroom apartment. Tick. A smaller boutique block. Tick.

"In addition, this apartment is also unrestricted company title so while it can easily be rented out, everyone has to undergo an interview which guarantees good owners and good tenants there," says selling agent Mark Foy, of Belle Property Surry Hills (0402 774 974).

"That means the building is even better looked after. And it's in a great location, right next to Victoria Street, close to Kings Cross station, Oxford Street and Surry Hills. An investor – or owner-occupier – can't go wrong with this."

The apartment is on a higher level of one of Darlinghurst's best art deco buildings, with a beautiful contemporary fit-out, high ceilings, timber floors, a gas fireplace, plantation shutters and district views.

It was originally a two-bedroom apartment and could still be reconfigured back to that, if preferred. There are separate lounge and dining spaces, the kitchen has stainless steel benches and the master bedroom, a built-in wardrobe. There's also a communal rooftop area.

The apartment goes to auction next Saturday. "You could ask $600 a week from a tenant, easily," says Foy. "The owner is a pretty cool cat and she's presented it beautifully."

See more at: domain.com.au/2013029281

Or try these:

12/234 William Street, Potts Point

12/234 William Street, Potts Point
Guide: $620,000-$680,000

Close to Kings Cross station, the supermarket over the road and easy walking distance to the CBD, this one-bedroom apartment in The Banque would be perfect for an investor, says selling agent Harold Wolf of Laing + Simmons Potts Point/Pyrmont (0421 696 399). "It's in the right location with everything a minute from the front door." On the third level, it has a large timber-decked balcony. For auction October 4.

See more at: domain.com.au/2013043824

89 Young Street, Cremorne
Guide: $1.75 million - $1.85 million

Perfect for a couple or young family to rent, this two-bedroom renovated Federation semi has a family room with a balcony. "There's also the opportunity to improve the value by fixing the place up, which can increase returns for both capital growth and rental income," says Alex Myers of McGrath Neutral Bay (0414 690 520). It's close to cafes and restaurants and has flexible casual living. For auction October 8.

See more at: domain.com.au/2013042659

100 Lord Sheffield Circuit, Penrith

100 Lord Sheffield Circuit, Penrith
Guide: $745,000

In one of our investment hotspots, this new three-bedroom, two-bathroom terrace in the new suburb of Thornton, close to the train station, is expected to be snapped up by a buyer looking for high yield and full depreciation. It has a formal lounge, open-plan kitchen and a dining and family room leading on to a sunny courtyard. For sale via PRDnationwide Penrith agent Daniel Latty (0437 609 290).

See more at: domain.com.au/2013025941