No you're not missing anything but as others have eluded to, it's your strategy that's important.
Of course ideally you would add significant value to the property and increase the rental income in every situation. However, unfortunately property isn't always like that!
For instance, if you have identified an excellent capital growth area, then when purchasing you may find it very difficult to buy a bargain. However, in this case, you can ride the wave of the capital growth with a sort of compounding effect if you were to renovate it first. You'd also have the benefit of higher income and hopefully better tenants. This is more of a long term strategy where you are not looking for immediately equity gain to go on and recycle for another deal.
If you are looking to manufacture equity in your property, say for the purpose of buying again, then you will certainly need the right property in the right area (ie the worst house in the street will not usually make you the most money). A good strategy I find is to buy under value (and under the median ideally), renovate it well, then reval/sell over the median. The trick is going to be in the phrase 'renovate it well' which doesn't necessarily mean a complete strip/start again job. Most of my clients at least double their money (after all expenses) from their renovation even though many don't always do predictable renovations such as new kitchen, new flooring, new vanity - blah blah blah... (you can tell I get sick of the generic answers people give to the 'how shall I renovate my property' questions!). Every property is unique and does not require the same treatment as seemingly similar properties in the area.
It would be fairly unusual to buy under value in a high capital growth area (though I do know people have done it!) - but if you can do it, you will get instant equity as well as capital growth over a period of time. Usually you would choose one or the other (immediate equity or gradual equity growth).
It all depends on your strategy. There are loads of property coaches and specialists out there who will help you identify your best strategy. Feel free to message me and I'd be happy to pass you on a contact name or two. I know of one excellent Australia-wide company who offer a lifetime property coaching membership for $10,000 (probably a fraction of your profit even on the first deal).
There is evidence everywhere in every suburb, so before you do/buy anything, be sure to head to RP Data, Real estate agents to find out your probable reval/rental income etc figures you would expect to earn once the reno is completed.
