This is the true story of “Bob.” An Australian living in Hong Kong.

I met Bob when he arrived in Hong Kong some 20 years ago, and he made two property purchases:

One in Sydney, in Crows Nest, a terrific lower north shore suburb. He purchased a 2-bedroom, 2-bathroom spacious (90 sq. m) apartment off -the- plan with a car park.

He also put a 10% deposit on an off- plan apartment in Brisbane.

 To hedge his bets.

The Brisbane one completed in 2004 and he took possession for AU$303,000.

The Sydney one completed a year later, and as you would expect was quite a bit more expensive. More on Sydney later.

The Brisbane apartment one was a smaller (75 sq. m) 2-bedroom, two bathroom with one car park in inner Brisbane.

He secured a 90% mortgage from a building society, meaning he only had to outlay his initial 10% (plus legal costs and stamp duty).

The apartment has seldom  been empty over the past 17 years since Bob took possession.

Many times over those years, and I mean MANY times, has he has asked me whether he should sell this apartment as it is “terrible investment” and he would have been better off leaving his cash in the bank where he could “have got a far better return” without any hassles.

On several occasions over the years I have shown him on the back of an envelope how the property calculations worked, but like many people he just didn't get it.

He was hoping to make windfall gains on the capital growth – if not overnight- at least in a couple of years.

And when this didn't happen, he thought he should sell.

So after only 2 years of holding the Sydney one he had sold it, as it “wasn’t moving” and he couldn’t afford to hold it any longer.

And a few years later he wanted to unload his Brisbane one too as he said that with all the expenses he was “bleeding money every month” as the rent did not “even get close” to covering the mortgage and all the expenses.

Now, without even looking at the figures, I knew that after 17 years of ownership, and even though he hadborrowed 90% of the price, that this is impossible.

So I sat down and got all the calculations from him, the rent receipts, the bank statements, expenses and loan documents, and what I discovered was SHOCKING. 


 There are a few ways to look at real estate investments.

 I addressed initially his immediate concern- the CASH FLOW.

After going through his statements for the previous 12 months, I put together an Excel spreadsheet for him.

Not only had he NEVER done this, BUT he  barely could find his expenses or loan documents, he didn’t know what interest rate he was paying or how much his Body Corporate expenses were.

(If you are  detailed person, you may find this unbelievable, but I can say from my 35 years in the business, there are MANY investors just like this)

All he “knew” was the Body Corporate was “overcharging” and maybe even “cheating”, the bank repayments were "way too high", and all the repairs and upkeep on the apartment was “killing him.”

As you can see from the spreadsheet I prepared below, the repairs and upkeep that was “killing him” was $65 a week for the previous 12 months. Not too bad for a 17-year-old apartment.

The body corporate fees were standard charges for a building of the size he owned.

And all the other costs were normal.

The flat was generating $500 per week in rental income - even in the middle of Covid 19- and he had hardly spent a penny in repairs, over the whole period he owned it.

He was also getting an extra $20 a week for his car park, as the tenants didn’t own a car so he could rent that separately .

Here is the EXACT spreadsheet I gave him:

So the apartment investment that was “killing him financially” ACTUALLY was cash flow positive to the tune of A$184 per month!

So it was hardly “bleeding him dry.”

Now it gets even more incredible. I was shocked to see there were TWO mortgages on the property.

The first one was $272,700 which represented the original 90% loan he took out when he purchased.

Obviously, he had never made ANY capital repayments in that time, and was still paying the original "interest only" loan: as they are known by in Australia.

BUT he seemed to have ANOTHER mortgage on the property, ALSO interest only at same interest rate, for $79,808.

When I asked him about that he said “Oh, THAT - yes, when the value of the flat went up,  I was able to refinance and get another $80K out against the new value!” 

I asked what he did with that $80K.

I asked what he did with that $80K, as this is the exact strategy many people use to buy another property. He said he had used it for “other investments”.

(More about that shortly)

So, if he hadn’t re-mortgaged, the real return on the flat would be CASH FLOW positive to the tune of $416 per month!

(And even more if he had asked his bank to reduce his interest rate to the current market rate)


The other thing I analysed for him was the ROI.

He paid $303K, and as of November 2020 at the end of Covid 19 (or perhaps it will be proven to be the middle) it appears the valuation of the property is approximately $435,000.

Obviously, it has come down during Covid as he did say a couple of years ago it had reached over $470K

His comments were “I’ve barely made $100K in 17 years, it’s a hopeless investment, I honestly wished I had left the money in the bank.”

Accepting the fact it hasn’t been a particularly strong capital gains performer, he also hasn’t LOST his capital. The $80K he pulled from the flat I subsequently found he had  invested in coal shares and in a plot of land in Thailand, both of which were disastrous. 

The whole $80K was lost.

But he is still having to repay it from the rent on the flat.

(He is currently pursuing legal action on the shares, and given up on the land)

So let’s see his REAL RETURN.

Now, I have shown him this several times over the years, and he STILL doesn’t get it. He just says “It's only gone up $100K... it’s hopeless”

So here are the actual calculations: (simplified)

Price                 $303,000

Deposit he paid $ 30,300

Loan 90%          $ 272,700


Assume value is $435,000 (According to bank valuation)

Payback loan     ($272,700)

Cash back          $162,300

Invested $30,300 received back $162,300* means ROI is equal to 435% return over 17 years from when he took possession.

For a “terrible investment” not too bad!

Especially when we compare to his shares and land in Thailand, where his capital has been decimated.

And we know that the freehold apartment in Brisbane has not only maintained its value and his capital is safe and secure, but it also has in fact increased - albeit not as strongly as some other property investments, and certainly if he had held his Sydney apartment he would be sitting on a small fortune now.


Let's go back to Bob's comment that he would "have been much better leaving off the money in the bank.”

The Australian bank savings rates back in 2002-2004 were around 5% and are now down to virtually 0% - so let's give him the benefit of the doubt-  and say that he achieved an average of 3% per annum every year with his $30,300 in the bank.

And I have taken it for the full 19 years since he first placed his 10% deposit to make an accurate comparison.

Below is the chart.

I've also allowed for an extra 2% increase as a comparison value to see if he had been able to get 5% average per year what the result would have been.

And the third figure shows the current interest rate, assuming 1%.

So if he HAD left it in the bank, he would now have $53,540, compared his property equity of $162,300.

Even if he HAD managed to get a fixed 5% return, he would still only have $78,192, less than HALF what his “terrible investment “ had made.

So there you have it.

But here is the kicker.

In a couple of years’ time, it is highly likely the property will increase in value as the lack of new supply due to Covid will kick in, the population and migration figures will increase again, and bank interest rates will stay low.

Which ALSO means he may well be able to lower his mortgage interest rate too!

If the property value jumps up just 20% over the next year or two, his ROI will dramatically explode to over 700%! From the current 435%.

Yes, you read that right!

And THAT my friends, is WHY I have been adamant he DOESN’T sell, as the  use of OPM (Other People’s Money), leverage and compounding makes even an average - or to use his words a “terrible” - real estate investment  one of the best things you can do with your money.

The biggest mistake I have ALWAYS seen in real estate is SELLING TOO SOON.  



*For illustration purposes and simplicity the calculation excludes purchase and selling costs and tax.