My Real Estate Philosophy
My real estate philosophy is very straightforward. It is just like value investing; you buy and hold. Once you buy a home that you like, you live in it. 20 to 30 years from now, you will have some profit in terms of asset appreciation. And they are tax-free if you sell your principal residence when the time comes. Of course, you don’t want to overleverage to buy a home. Otherwise, it may lead to a downward financial spiral, resulting in the need to borrow more in any unexpected event.
I am here to share my own story on how owning a home can lead to a particular financial appreciation in the long run.
Let me start here:
After I graduated from UBC in 1995, I moved to Hong Kong in search of my career. I started my first job as an assistant project manager in a commercial curtain wall construction firm. My job was to oversee different curtain wall project on behalf of the developers.
In that time, heading to the 1997 handover of Hong Kong from British to China motherland, the economy was phenomenal, so as the other Asia region.
How phenomenal was it like in Hong Kong? I would like to use the word “fantastic” to describe the situation there.
Some ordinary people, including me, work 9 to 6 full-time jobs for monthly hard-earn money. In contrast, some smart people just line up 9 to 6 in a one-day property presale event for their one-year easy money.
What was going on there?
There is a quote that originated in Hong Kong, “Horse races will go on, and night clubs will stay open.” It means that people only care about making money. They don’t care much about politics in those days.
And even more, people only care about earning money fast. Speculating in the real estate market is one of many ways to make you a fortune.
It is because the real estate market was very exuberant there.
You don’t need to save any downpayment. You don’t need to have the bank to pre-qualify you. You don’t need a job. All you need to do is become self-employed and have a little deposit to line up for any property presale event. (No internet in those days, so you have to line up for everything.) Once you sign the purchase and sale agreement for a presale unit, you are almost guaranteed to make easy money. It is because property assignment (property flipping) was the fastest way to make easy money in those days.
Why did I not just become a flipper to make easy money?
I did not participate in the game, partly because I didn't have the money for a deposit, and partly because I had a full-time job occupying my time. Furthermore, I knew nothing about speculating in the real estate market my age. So often, I needed to follow my boss to fly around the world to conduct the curtain wall testing and inspection.
Beginning in July 1997, things changed. I don’t want to repeat what the 1997 Asian financial crisis is all about. What I want to say is that I know many people (Flippers) went bankrupt for no one undertaking their presale units since the real estate market plummeted. I am not talking about one to two units here. I am talking about five to ten units at the same time holding. Since those speculators have no financial capability to obligate the purchase agreement, going bankrupt is the only option. There was some other option, but I don’t want to mention it here. You can take a guess.
The domino effect of the 1997 Asian financial crisis
Since the Asian financial crisis, the domino effect came quite furiously. It affected the real estate market, then the commercial, the retail, tourism and other manufacturing sectors, etc.
Those doom and gloom anticipation made many big companies cut their capital expenditure and withhold particular project development. Once my company completed those on-going projects in 1999, the construction tenders for curtain wall projects shrunk as developers withheld their commercial building projects. As a result, I got laid off the first time in my life.
Finding my way and restarting again.
It was a severe blow financially and emotionally when I lost my job. For keeping my life on an even keel, finding a new job became my full-time job. I just needed to stay positive. Of course, I rode it out.
I started thinking to myself whether a self-employed job is a good option these days.
I am not talking about lining up for the presale unit that I mentioned previously. I am talking about a self-employed career where I can fully extend myself and made a decent income compared to those full-time jobs working for someone. For a self-employed career, I would never get laid off again. It was marvellous.
So, I started my self-employed career as a life insurance agent. It was a tough business to start from scratch. I made almost 100 cold callings every day during my first six months. Of course, I got a lot of rejection. However, by doing that, I also got some feedback and started developing client relationships with people who realize my hard work, consistency, and sincerity. Since then, I continued this "people business" for almost 20 years before moving to Canada.
My first home purchase
Since the 1997 Asia financial crisis, the Hong Kong home price had a substantial discount from 1997 to 2003. You know what, you can never time the market and catch the bottom. I just bought a home in 2001 at the time when I felt comfortable financially. (Here, I would like to thank you to my family giving me a big help financing the home in the first place.)
It was a big decision, and you would never regret it.
I never treat my home as investment tools until I sell it.
Just a few months right after I bought my home, it came to the 911 terror attack. Did I care about my home price? Of course not, it was because I never intended to sell my home. So long as I could comfortably pay out the mortgage, everything was just fine. I had a roof over me. There were a series of events affecting my home price during these 17 years. It first came to the 911 in 2001, the SARS in 2003, the global financial crisis in 2007, and the European sovereign debt crisis in 2012 at the time I live in my home. Those events did not affect me at all because I was a user rather than a speculator. (I think the same case apply to the recent Covid-19 event)
It was a three-bagger investment at the time I sold my home.
In 2017, my wife and I, with my two little kids, decided to move to Canada. So I needed to sell my home. The selling price was three times its initial price. It was good enough for us to buy a new home when we arrived in Canada.
If I look back on the total return of owning a home in Hong Kong, it was not only a three-bagger gain. It was more.
Let’s imagine; instead of owning a home, if I lived in a rental house for those 17 years, it would cost me a massive amount of money. Let’s do a simple calculation as follow:
I use HKD 22,000 as the monthly rental fee (I average it in these 17 years including inflation)
So when I do the math, it comes to this:
HKD 22,000 X 12 X 17 = HKD 4,488,000
It would cost me HKD 4.5 million to live in 17 years.
In summary, the total return would be like a 3X initial price + rental fee saving - mortgage interest fee. It would come to a positive performance even if the selling price were just the same as the initial price. At least I earned the rental cost for myself in those 17 years.