Property isn’t a property game. It’s a finance game.

If I could get one idea into the head of every first-time investor, it’s this one. Everything else we do follows from it.

When most people start thinking about an investment property, they think about the property. Three bedrooms or four? Renovated kitchen? Is the street nice? Would I live there?

I get it. That’s how we buy homes. But an investment isn’t a home, and the thing is, the house itself is the least important part of the decision. What you’re actually buying is a financial position: a certain amount of land, in a certain market, funded with a certain amount of debt, that has to keep paying for itself while it does its job.

So we treat it that way. Property investing is first and foremost a finance game. Get the finance and the fundamentals right and the property almost picks itself. Get them wrong and no amount of nice kitchen will save you.

The $100 property

Here’s the example I use in nearly every first consultation. Let’s say we’re buying a property for $100. Keep it simple.

• Option A: we pay $70 for a brand new house and $30 for the land underneath it.
• Option B: we pay $30 for a 40-year-old house that nobody would put on Instagram, and $70 for the land.

Over time, the land goes up in value. The house goes down. Buildings wear out; dirt doesn’t. So in Option A you’ve got 70% of your money sitting in the thing that depreciates. In Option B you’ve got 70% in the thing that appreciates.

Think about a new car. You drive it out of the lot and it loses 20 to 30 per cent on the spot. A brand new house works the same way; you open the front door for the first time and a chunk of what you paid for the building is already gone. That’s why you’ll never hear me say “buy brand new”. If I ever do, I’ve officially lost the plot.

So the house? Honestly, I don’t care much. I don’t care if it’s got three bedrooms or four, a nice kitchen or an ugly one. What I care about is that you get as much land as you can for your dollar, in a market where the demand for that land is going up.

Why the finance comes first

Once you accept that you’re buying a position rather than a house, the order of operations changes. Before we look at a single listing we need to know three numbers:

1. Borrowing power. Not the maximum the bank will lend you; the amount you can service comfortably with a buffer. We model at a higher interest rate than you’re paying, on purpose.
2. Cash or equity available. Deposit plus roughly 6% of the purchase price for stamp duty, conveyancing, inspections and insurance.
3. What you actually want the property to do. Growth to recycle into the next one? Cashflow to hold for decades? Both at once is rarer than the spruikers pretend.

Those three numbers set the brief. The brief sets the markets. The markets set the shortlist. The house comes last, and by then it’s a fairly boring decision.

Conservative by default

A finance game is a game of assumptions, and the assumption that matters most is the one you get wrong. So we don’t model the good case. If your rate is 5.9%, we model at 6.5%. If the property manager says $520 a week, we run it at $480. If the data says 7% growth, we plan around less.

Have you heard of the rule of 72? Divide 72 by your growth rate and you get roughly how many years it takes to double. At 7.2%, ten years. It’s a handy sanity check, and it also shows why a couple of percent either way over a long hold matters so much more than whether the bathroom’s been done.

The buffer isn’t pessimism. It’s what lets you hold through the year the air conditioner dies, the tenant leaves and the RBA does something unhelpful, all at once. That year always comes. Buyers who modelled the good case sell in it. Buyers who modelled conservatively hold through it, and holding is where the money is made.

My own first one

I bought my first property at 25 and I stuffed it up. Not the suburb; the finance and the timeframe. It cost me an arm and a leg to hold, it wasn’t growing, and after six years I sold it, made a small profit on paper, and once you counted every cost I was pretty much back where I started.

Then it tripled. After I sold. That property taught me two things I now say to every client: six years is the minimum hold, and the numbers have to work on day one so you can afford to still be there on day 2,190.

What this means for you

If you’re at the start, don’t open a listings app yet. Open a spreadsheet, or better, the MOGL calculator, and pressure test the position first. Higher rate. Lower rent. A month of vacancy. Does it still hold? Good. Now we can go shopping, and we’ll be shopping for land.

And if you want a second set of eyes on those numbers before you commit to anything, that’s exactly what the free strategy call is for. No hard sell; straight answers.

This article is general in nature and does not constitute licensed financial, tax or credit advice. Your situation is specific; please talk to your broker and accountant before acting on anything here. Past performance is not a reliable indicator of future results.