Property: investment or not?

I own four properties. I still tell most people not to buy a second one.

I've been a landlord across NZ, Australia, and the Philippines. I've had the 11pm hot water cylinder call. I've had the tenant who paid for 5 years and the tenant who didn't pay for 5 months. I've sold one for double, sold one for break-even, and held one through a 30% drop because the alternative was crystallising the loss into a marriage-sized fight.

Property is a real asset class. It builds wealth. It also breaks people who think it's passive.

So let's separate the noise.

Your home is not an investment

The principal place of residence (PPOR) is a lifestyle asset that happens to also store value. It's the house your kids grow up in. It's the suburb close enough to your sister's school. It's the kitchen your wife wanted. The financial return is incidental.

The numbers actually matter, though, because the PPOR has structural advantages:

• CGT-exempt on sale (if it's been your main residence the whole time)
• Forced savings through principal repayments
• No tenant risk, no vacancy, no manager fees
• Inflation hedge that you also live in

But it's also the worst-performing dollar in your stack on a strict ROI basis. You can't deduct the interest. You're paying maintenance, rates, insurance, and stamp duty out of after-tax income. If you sold it tomorrow and rented something equivalent, you'd often be wealthier in 20 years (renting is mathematically the better long-term financial decision in many AU capital cities, depending on price-to-rent ratios).

I own my PPOR. I don't justify it as an investment. I justify it as a place to live. Be honest with yourself about which you're buying.

Investment property: the actual case

A residential investment property in Australia generally returns 3-5% gross rental yield and 3-6% real capital growth, depending on the city and the decade. Net yield (after rates, insurance, agent fees, repairs, vacancy) is closer to 1-3%. Capital growth is the engine.

The reason property has built generational wealth in Australia is leverage. A $700k property with a $560k loan and 20% deposit ($140k cash + costs) that grows 5% in a year delivers $35k of capital gain on $140k invested. That's 25% return on equity, in a year, before rental contribution. That's not a comparison ETFs win without similar gearing.

The catch: leverage compounds losses identically. A 5% drop = 25% wipe of equity. Add transaction costs (5-7% to buy, 2-3% to sell) and you need significant growth just to break even.

When property makes sense:

• You can hold for 10+ years. Below that, transaction costs dominate.
• You can ride a 20-30% drop without panic-selling. Sequence risk applies here too.
• You have spare borrowing capacity that won't trap you. A second loan is a second leash on your career.
• You're buying in a market with structural demand drivers (employment, migration, infrastructure). Not a town that depends on one mine.
• You can stomach being a landlord (or you have the cash flow to outsource it well).

When it doesn't:

• You're buying because "everyone in Sydney is rich". That's survivorship bias.
• The yield is 2% and the capital growth thesis is "Sydney always goes up".
• You're stretching deposit + loan to the brink. Cash flow buffer matters more than entry price.
• You're treating a unit in a high-supply CBD tower as growth property. (Look at OTP unit returns over 15 years. Wince.)
• You're buying interstate sight unseen because a property spruiker showed you a slide deck.

Negative gearing, in plain English

Negative gearing isn't a strategy. It's a consequence.

If your rental income is less than your deductible expenses (interest, depreciation, rates, repairs, agent fees), the loss can be offset against your other income. At a 37% marginal bracket, a $10k loss saves you $3,700 in tax.

This is real money. It's also $6,300 of money you actually lost. The strategy only works if capital growth more than makes up for the cash outflow. If it doesn't, you're just slowly losing wealth in a tax-efficient way.

I've held negatively-geared property because I believed the capital growth thesis. I've held positively-geared property because I bought in a regional market with strong yield. Both can work. The wrong question is "negative or positive gearing". The right question is "total return after all costs, after tax, after my time".

Yield, growth, and the real return

The honest equation:

Total return = (rental income - all costs) + capital growth - cost of capital

Cost of capital includes opportunity cost of the deposit, the interest on the loan, and your own labour as a landlord (or the manager's fee). When you compute it properly, a lot of investment properties deliver mid-single-digit returns over 10-20 years. That's competitive with ETFs but not obviously superior, and the work-to-return ratio is meaningfully worse.

Where property genuinely beats ETFs is when leverage is used responsibly into a market that grows. Where it loses badly is when leverage compounds a flat market into negative equity, or when one bad tenant + one bad maintenance year wipes out three years of gains.

My personal split

For context: I hold property because I started young, used leverage when banks were generous, and rode a decade of growth in two of the three markets. I wouldn't replicate the strategy if I were starting today.

If I were 30 in 2026, here's what I'd actually do:

• Buy the PPOR if it makes life sense, not because "renting is dead money".
• Max super first. The tax arbitrage is uncatchable.
• Build the ETF stack second. No tenants, no calls, no stamp duty.
• Consider one investment property only if the numbers genuinely work, the yield is real, the location has structural drivers, and you can hold 15+ years.
• Skip the second investment property. Concentration risk is real. A property portfolio in one country is one currency, one tax regime, one government decision away from a problem.

The hidden costs nobody quotes

Things that don't show up on the spruiker's spreadsheet:

• Stamp duty: 4-6% of purchase, immediate
• Conveyancing, building/pest, mortgage costs: ~$3-5k
• Agent fees on rent: 6-8% of rent + letting fees
• Vacancy: budget 3-4 weeks per year average
• Repairs and maintenance: 1-2% of property value per year (plumbing, hot water, paint, carpet, the dishwasher)
• Land tax: state-dependent, kicks in over thresholds, brutal in Vic and NSW for portfolio investors
• CGT on sale: 50% discount after 12 months, but still significant
• Your own time: call it 20-40 hours/year per property

Add them. Compare to the same capital at 7% in VGS with no calls at 11pm. Decide honestly.

What to do this week

• If you're a renter wondering whether to buy: run a rent-vs-buy calculator with realistic numbers. Buy if it suits your life. Don't buy because someone shamed you about "throwing money away".
• If you're a homeowner considering an IP: model the actual cash flows for 10 years, including a 20% drop scenario. If it still works, look. If it requires capital growth to survive, walk away.
• If you already own IPs: compute your real after-tax, after-time return. If it's under 5%, ask yourself why you're not in ETFs.

Property builds wealth. Property breaks people. Choose your role.

Not financial advice. Talk to an adviser before acting.