Ask someone how their property’s performing and you’ll usually get one of two answers:
“It’s gone up 10% this year.”
“It’s yielding 6%.”
Both are fine, but both are incomplete. It’s like judging a restaurant by whether the chips were hot — sure, it matters, but what about the steak, the service, and the wine list?
Property returns are never just one thing. They’re the combination of three levers you can pull at different stages of your investing journey:
Capital Growth – the market + time + location fundamentals
Cashflow – rent, debt, tax, expenses
Manufactured Equity – renovations, developments, value-adds
Get your head around these three, and suddenly property investing stops feeling like guesswork and starts feeling like engineering.
Lever 1: Capital Growth (the compounding machine)
This is the lever we all love to brag about. Growth is the silent compounding engine that takes an $800k house and turns it into a $2m house while you’re busy living your life.
How it works:
Macro drivers: population growth, infrastructure, employment hubs, supply constraints
Micro drivers: school catchments, walkability, street appeal, zoning
How to tilt the odds:
Buy in proven locations with demand and limited future supply
Prioritise lifestyle factors (parks, transport, schools)
Hold long enough to let compounding do its magic
Trap: If you rely on growth alone, you’ll go broke before you get rich. You need cashflow to keep you in the game.
Lever 2: Cashflow (the oxygen tank)
Cashflow is not sexy. No one brags at barbecues about their $8,000 surplus. But without it, you suffocate. Cashflow is what keeps you solvent while growth does its slow burn.
What affects it:
Rent: market demand, upgrades, tenant quality
Debt: interest rates, LVR, IO vs P&I
Expenses: insurance, rates, maintenance, land tax
Tax: depreciation, negative/positive gearing, ownership structure
How to tilt the odds:
Improve rent with upgrades, re-leasing, or furniture
Reprice debt and don’t be lazy with your bank
Systematise maintenance and shop around for insurance
Trap: chasing high yield in terrible locations. A 10% yield is useless if the value halves and no one wants to live there.
Lever 3: Manufactured Equity (the accelerator pedal)
This is the active lever — where you create value instead of waiting for the market to gift it to you.
Ways to play:
Cosmetic reno (kitchen, paint, flooring)
Layout tweaks (add bedroom, granny flat)
Small development (duplex, subdivision, DA uplift)
Commercial value-add (re-lease, refit, increase NOI)
How to tilt the odds:
Buy below replacement cost
Be conservative with costs, blowouts happen
Have multiple exit strategies
Trap: overcapitalising or forgetting about time delays. It’s not a win if your “$70k reno” costs $120k and takes 2 years.
Case Study: Sam’s $120k Freedom Plan
Meet Sam. He’s 38, with 17 years until his target “freedom age” of 55. He wants $120k of stable, passive income so he can choose whether to keep working or not.
Here’s how he uses the three levers with a sensible 2-year gap between each purchase so that he can accumulate enough deposits and buffers. Read on and see why he will be pleasantly surprised at the end.
Year 0 (Age 38) – Growth House
Buy: $800k
Debt: $640k (80% LVR)
Held for 17 years at 7% growth → Value ≈ $2.57m
Debt still ≈ $640k (assuming IO until pivot)
Equity ≈ $1.93m
Year 2 (Age 40) – Regional Duplex (Cashflow Play)
Buy: $700k
Debt: $560k
Held for 15 years at 7% growth → Value ≈ $1.95m
Equity ≈ $1.39m
Plus net cashflow of ≈ $14k/year, growing over time
Year 4 (Age 42) – Reno / Manufactured Equity
Buy: $750k + $100k reno + $40k costs = $890k all-in
Debt: $712k
Reval after reno: $1.05m → $160k equity created instantly
Held for 13 years at 7% growth → Value ≈ $2.42m
Equity ≈ $1.71m
Portfolio Snapshot at 55
Growth house equity: $1.93m
Duplex equity: $1.39m
Reno equity: $1.71m
Total equity ≈ $5.03m
Sam’s sitting on a serious equity base. But his rental net income is only around $60k p.a. Nice, but not the $120k he’s after.
The Pivot to Commercial
At this point, Sam does what many seasoned investors do: he harvests his resi gains and pivots into commercial.
Sells all three resi assets
Nets roughly $5m after costs
Reinvests into commercial property at 6% net yield
$5m × 6% = $300,000 net income p.a.
That’s well above Sam’s $120k freedom number. Even with buffers for vacancies and costs, he’s set.
Why This Pivot Makes Sense
Residential is the growth engine. It compounds wealth and builds scale.
Commercial is the income engine. Higher net yields (5–7%), longer leases, more predictable tenants.
The trade-off is simple: less capital growth upside, but much more stability. For someone who’s built their nest egg and now values certainty over speculation, it’s a smart move.
The Equation in Action
What Sam did wasn’t complicated:
Total Return = Growth + Cashflow + Manufactured Equity
Growth gave him the compounding power
Cashflow kept him in the game
Manufactured equity sped up his equity creation
And the pivot turned all of that into stable income
Practical Tips
Run a lever audit: For each property, ask yourself: Is this giving me growth? Cashflow? Equity potential? If it’s not doing at least one well, why do you own it?
Stage-match your strategy:
Early = growth focus
Middle = blend in manufactured equity
Mature = pivot to cashflow stability
Keep buffers: Always have 6–12 months of holding costs in offset. Equity is useless if you can’t pay the bills.
Plan your pivot: Don’t wait until you’re 55 to think about it. Have a clear strategy for when and how you’ll shift from resi to commercial.
Common Mistakes
Obsessing over growth but bleeding cashflow
Buying for yield alone in dud markets
Overcapitalising on renos
Thinking resi will give you retirement income without a pivot plan
Reflection
When you see property as three levers instead of one number, the whole game changes.
You stop waiting for the market to rescue you. You start designing your returns - you just need to invest some elbow grease if you need to move things along quicker.
Like Sam, you can build wealth in stages, then flip the switch when you’re ready to turn wealth into lifestyle.
Anyways… thanks again for reading this week’s editio and being part of the journey.
See you all next week.
—Alex
Disclaimer
This article is for educational purposes only. It does not constitute financial, legal, or tax advice. Everyone’s circumstances are different. Please seek professional advice before acting.
