Sydney investors looking to gain both high capital growth and healthy rental returns should look at well-located older units about a decade old, according to a leading property expert.

John Edwards, CEO of Residex, said the potential to make a profit is higher in this segment of the market because such units are often found in areas seeing new unit development around transport hubs. He explained that these older units are more likely to decrease in price due to surrounding pressure, as newer units are brought onto the market.

"As a direct consequence of this, these older units should allow better negotiated purchase prices," Edwards added. "Older units also tend to have less facility in them, thus their strata fees are less. These units will present an opportunity for immediate gain with resale after minor refurbishment. The lower cost will ensure that the rental yields are higher. Affordability issues are going to make units more popular and hence we're going to see higher levels of demand. This will in turn lead to continued growth in this segment."

According to Edwards, capital growth rates for units were higher than those for house and land markets over the last quarter.

"There is an ongoing potential for this to be the case as it's this market which is most affordable and producing the best rental returns," said Edwards. "This market is also less at risk as interest rates increase, as it's the domain of the investor and these people are going to be less stressed by interest rate movements. A large percentage is Baby Boomers and this group most often are cash-rich empty nesters. There's also an added benefit in a market where demand is growing that rental yields are going to increase."

Edwards also warned investors to stay away from Melbourne and Darwin because of the phenomenal price rises experienced recently.

"If you haven't already invested in Melbourne, then the opportunity has largely passed and hence I would suggest that unless you're a very experienced investor, you should stay away from that market now as the risks are getting a little high. Darwin has become expensive so be very selective if you want to invest in that market."