Lisa Llewellyn, a Sydney marketing consultant, has bought two investment apartments during the past 10 years intending to generate capital gains for topping up her retirement income.
Lisa, and her partner Tim Bradley, a cameraman, who also have a home in North Narrabeen, about 25 kilometres north of Sydney, are investing for long-term growth rather than rental income.
Rental income from the apartments do not cover mortgage payments, which means they are making the most of generous negative gearing concessions that allow the shortfall to be offset against their combined income.
"These are not short-term investments," says Lisa about the apartments that are both located around Manly Vale, which is 17 kilometres north-east of Sydney's central business district.
She says they are easy to rent because both are within commuting distance of Sydney, beaches and popular shopping centres.
Their first investment about 10 years ago was in a two-bedroom, third floor apartment in a three-block complex. Rent from the unfurnished apartment does not quite cover the mortgage and monthly expenses.
Its value has increased from about $369,000 to more than $600,000.
The second apartment, bought in 2011, has one-bedroom and has increased in value from about $373,000 to around $630,000. Both have garages.
Lisa and Tim, who are aged in their 50s, says a doubling of interest rates and falling yields would have little impact on their financial strategy. Both loans are standard variable and should be paid off by the time they retire in about 15 years.
"A drop in capital values of between 10 and 20 per cent would be fine. Anything bigger might make us reconsider our strategy," she adds.
"We don't have much [in] super savings so this is a way of supplementing our retirement strategies."
Rising property prices and soft weekly rents are pushing residential property yields down across Australia's combined capital cities to a record low of 3.2 per cent, from 4.2 per cent five years ago.
Sydney's yields have been squeezed the hardest and are about 2.9 per cent.
Mario Borg, principal of Mario Borg Strategic Finance, who has 12 investment properties worth about $12 million, says property investors need to focus on capital gains for long-term growth.
"Investors need to ask what their property will be worth in 20 years' time," he says.
"Rental income helps you service debt but it is capital growth that gets you out of debt."