Munzurul Khan

Opportunity Cost: Take Action Now with Munzurul Khan

Chartered accountant and property investor, Munzurul Khan, will take us on his journey from working in the corporate world to set up his own flourishing business. Find out why the opportunity cost of missing out on a great property often outweighs the financial cost and learn from Khan why it’s so important to take action.

The principal of Keshab Chartered Accountant will discuss where the influence to get into property came from, why $2,000 doesn’t matter in the grand scheme of things and why Khan’s mum thinks he’s crazy!

“Even if you paid a couple of grand extra at this stage, hold on to it! In a longer period of time, you would see that you’ve done very well.”
-Munzurul Khan

So what does a given day for Khan look like?

We are problem solvers, so our clients will bring in any level of problem from very simple material on buying this particular property, which language structure that we buy, back to a very sophisticated matter such as that they’ve got a big inheritance and what could be the tax minimisation and what could be the tax planning with that big inheritance, as such. So that’s sort of strategic, but fundamentally as it is to any accountants, we are compliance-oriented so we do a whole bunch of tax returns, we do a whole bunch of financial accounts, management accounts, ASIC adjustments as well as the ATO balancing.

Growing up overseas and then completing his schooling in Australia, Khan was initially inspired to get into accounting by a family friend.

I was born in Bangladesh and my parents came over to Australia back in 1993, so I came over to Australia with my parents. I was in high school until Year 11 and sort of progressed from there.

Did you actually decide okay after that to go to university and then progressed through into finding a career in accounting? Did you have to study accounting at uni?

I did all my science subjects in Years 11 at 12, but I knew nothing about accounting, I knew nothing about commerce. And I still remember when I was selecting the subjects I had this family friend who suggested that, ‘Well, perhaps it’s the commerce line that you want to go through.’ So I said, ‘Well all right, commerce seems to have more prospects so to speak, so I’ll go with commerce.’ Then I sort of said to myself, ‘If I did commerce, what subject do I choose?’ and I went to the careers adviser and they said that it’s the accounting, the finance, which seems to be my sort of range, fundamentally. I said, ‘That’s the reason that I’ve selected it, so I’ll start with accounting and finance and see how I go.’

And as time proved, what I have learned is that the traditional view of accounting as we see as a scorekeeper is such a fallacy in the modern world; and fallacy in the sense that accountants are not only the accountants – accountants can very well be coaches of the business as such. We coach the business in a certain way where we build a business in a certain way and that sort of came to some extent as an inspiration, from my point of view. There were a couple of people I met along the way and I thought, ‘Well, let’s give it a go.’

And clients are coming to his Chartered Accountancy in droves, due to the proactive and strategic nature of their services.

One of the fundamental questions that we always ask when someone joins us for the first time is, ‘Why are you changing your existing accountant back to ourselves?’ and a common answer that we hear all the time is that, ‘Our accountant is pretty good in terms of numbers, he does the accounts very well and he does the financial accounts very well. But there is not a whole lot of proactiveness in terms of strategic matters. There is not a whole lot of advisory services.’ So it seems to be more reactive, there is no sort of, not so much creativity, but there is no I suppose lateral thinking in terms of how the way they structure the business, as opposed to just purely looking into the compliance tax savings. How do I look into matters such as asset protection? How do I look into matters in terms of retirement planning? How do I look into matters such as succession planning? And how do I look into many of those strategic planning sides of it? So that’s what we hear all the time. The way I see it as a modern accountant, yes you need to do all the compliance work, the taxes and all the accounts. Of course they need to do it, but you also need to strategise the business in the right way, so the deductions naturally flow through in the most effective manner where your risk is being mitigated.

Before starting his career as an accountant, Khan took on various different jobs.

When I completed my first year at uni, my first job was in a factory and this was more of a factory of sandwich making and my role to a great extent was to provide a helping hand, a bit of cleaning and throwing away the rubbish and all the rest of it. I did that for about three months or so over the summer for vacation, that was my first experience.

Then I was fortunate enough that I applied to a couple of small accounting services and I was offered a role in one of the accounting premises as a junior accountant. While I was at uni part-time, I did about two years of undergrad in a trainee program and after about two years came back to full time for the last year to finalise the unit, went into the CA (chartered accounting) straightaway after that back into PWC and BDO.

So you’ve been pretty much most of your career haven’t always within the accounting field and you’ve worked in there and you’ve progressed into running your own business after a few years of working. How many years did you stay in the workforce working for those companies?

At BDO I was there for about six and a half years, PWC I was there for about four and a half years and prior to PWC, a couple of small practices for about two years. So all up I suppose roughly about 13 years or so before I started my practice and that practice has run for about nine years.

The move to start his own practice originally stemmed from the wish of being able to focus more on what he enjoyed about the role.

I love PWC and BDO, as there was quite a bit of mental fist – and mental fist in the sense that the knowledge and the wisdom and the experience were quite enormous. And the client groups that you receive are quite enormous, as an example Christian Dior was one of my clients back in PWC over a number of years. Those sorts of clients you only generally get to see in the wider world. So I absolutely adored it, I lusted over that sort of experience and I celebrated every single moment of it.

I found, with all due respect, that there were still some restrictions in the larger practice in the way the practice runs with the overhead cost and the way that one can contribute to an individual life and one being allowed to contribute, as opposed to an individual. Because it is a corporate world, there are some corporate restrictions as such. So I said to myself, ‘I’ll give it a go on my own.’ I still remember when I started the practice I said that I’d set aside about a year to a year and a half of my salary to start my own practice and see if it works. And if it works, brilliant and if it doesn’t work, well I know that I’ve given it a go and at least it is out of the system.

So the whole inspiration came in with a few things that I wanted to do. And I enjoy spending time with people, I enjoy sitting down and having a good chat with someone who’s coming in and without having to worry too much of what we are billing, whether the client is productive or the client is profitable; without having any of those very strict commercial KPIs. I enjoy sitting going and having a chat and seeing how it goes and in the corporate organisation sometimes that gets restricted.

Building relationships is a privilege for Khan, as not only is he able to build his business through it but also learn from his clients.

All my learnings are a combination of the learnings from my clients, that I learn from my clients. And it’s very often that my clients that provide me a particular question – ‘What do you think of this material?’ ‘What do you think of this?’ – and very often, we don’t know the answer. We go back and do the research and we learn from it. Clients share their business, they share their personal life and very often you take learnings from all of those experiences and I see myself being in a privileged position, where I’m learning from my clients on an ongoing basis.

The influence to begin property investing came from Khan’s father, who guided him to make his first purchase.

It’s funny because I actually never threw myself into property investments back in my uni days, as probably many younger people do I wanted to buy shares. And my view was, ‘Why would I want to buy investment properties?’ That was my mindset in my early 20s – why would I, property has tenant issues when the hot water system doesn’t work, when the blinds don’t work; it’s a big intangible asset. It’s harder to sell it that way as opposed to shares, shares were more exciting – it goes up on a daily basis, I can jump into the internet and see the shares and so forth. So I always wanted to buy shares, I had no intention of getting into the property market.

My father, who’s been into the property market over many years, has retired now. So my father sort of influenced me, he said, ‘You’ve got a bit of savings, use these savings to buy your first home.’ And I said, ‘Well, I really don’t know,’ and my father said, ‘Listen to me, buy the first home and once you buy your first home, after that you can do whatever you wish to. But just take it from my experience and buy it.’ I still remember that I bought that first property at that stage and there’s a number of experiences. There was a three-bedroom house in Ingleburn, nice house, little bit of backyard, it was only about seven years old back in 1999. We negotiated that property for about $120,000 and I still remember I spoke to my father once we negotiated and said, ‘I probably paid $2,000 extra.’ I really believed the market value was about $118,000 and my father said, ‘What’s the logic? How did you come back to $118,000? It really doesn’t matter whether it’s $118, $119, in a longer period of time even if you paid a couple of grand extra at this stage, hold on to it! In a longer period of time, you would see that you’ve done very well.’

Now I still own that property at this stage and I look back to it and I say ‘The market value is well over $500,000, as it is anywhere in the Campbelltown area.’ So the question that I raised to myself is what would the opportunity cost have been if I hadn’t to made a decision at that stage?’ to take away that two grand, shorter-term view. So I was strongly influenced by my father to buy the first property, the second, third, fourth and fifth property and then along the way it built.

On starting his property journey, Khan invested in his first property in south-western Sydney without realising the extent of its growth potential.

It was an investment property because at that stage I was not married, I was single and I was still with the parents, living at home. So it was a very standard, basic about $120,000 purchase price, the rent is about $180, three bedrooms and typical for a property in Ingleburn, as such. And if one does the maths, $180 and $120,000 had a rental return of 7.5%, then the interest rate back in 1999 was about 5.95% which I used to pay. So the property was very cash neutral, if not quite a bit of positive cash flow. Very basic, mum and dad, nothing extraordinary. But I suppose what the trick behind that particular property is that if I look forward now in about say 90 years later, it’s more the time in the market. It’s the time in the market that provides the compounding effect over a period of time, which provides the enormous level of wealth that one looks back at a particular point of time and says, ‘Wow, is that possible?’

I still remember that back in 1999 when I bought it that I heard that property investments double every seven to ten years, so if I look forward my $120,000 will become to $240,000 in about ten years and will become $480,000 in another ten years. I said, ‘In about 20 years’ time, 2019, this property would be roughly about half a million!’ and I sat down and said, ‘No way, Campbelltown? How could Campbelltown ever become worth half a million? No, not in my life, not in the wildest possible way Campbelltown will ever be half a million dollars!’ And I was 100% convinced. But if we come back now and if we think of $500,000 in Campbelltown, you would say that’s very cheap. What it is is that very often we know the statistics, but it’s understanding the statistics behind it. It’s really absorbing the knowledge. There is an inflationary impact to it, but I think it still comes back – if there is one comment that I would say in terms of how do you make it over a period of time, I’m a big fan of saying, ‘Take action.’ Yes, you do your calculation, yes you do your analysis, yes you do your risk mitigation and all the rest of the due diligence; but you still need to do your action. Any actions you give, in my view, is better than absolutely no action.

However, there have been times when things haven’t gone as smoothly for him during his journey.

This was back in 2004-2005 and I had a few investment properties at that stage and I’d heard of this concept called diversification, it sounds great. It mitigates the risk, so I’d like to be purchasing a bit more outside NSW. This was the first time that I started doing research in Queensland and started researching in some of the areas such as Logan and Ipswich. And I’d done research for a good six months on Ipswich, then I spoke to a whole lot of real estate agents and found a bit of time to go over to Brisbane. I said, ‘I’ll take a good week off, I’ll go to Brisbane and I’ll deal with all the different real estate agents and I can see whether I can purchase there.’ Now I have this friend and this is a friend who’s also a chartered accountant and who was also researching the area at the same time. I went to Brisbane and he also wanted to buy a property as well. He said, ‘You do a little bit of research, I’ll do a little bit of research, we’ll go there, we’ll see what we can do and then we’ll come back.’

Their plan was to go their own ways in Queensland, make their own purchases, then meet back at the airport a week later to compare.

My friend says, ‘How did you go?’ and I said, ‘It was good. I looked through a whole bunch of properties,’ and the particular that I’ve done transactions with. One property was in a suburb called Woodridge, which is close to the central area, the property was purchased for about $115,000 – this is back in 2004 – three-bedroom house, double story, fantastic backyard like 8 or 9 square km land, in-ground swimming pool, fantastic garden and the rent was about $175. And I said, ‘I don’t think you can do much lower,’ and my friend said, ‘Well how do you reach that conclusion?’ and I said, ‘The replacement cost of that property is probably around $150,000, if not more. So I’m really buying it at a zero land value.’ But even if I look from a cash flow side of it, again the return is about 3% and as an investor, your standard rule of thumb is about 5%. But to me, it doesn’t cost me much to hold in my hand, it’s a nice bit of an area and that I would buy it. My friend said, ‘Well done, congratulations,’ and then I said to my friend, ‘How did you go?’

And he was like, ‘Oh it’s interesting, I’ve got a transaction in a suburb called Marsden,’ and Marsden is next door to Woodridge. ‘It’s an almost brand new house, which was about a year and a half, two years old house, it’s a four-bedroom lock up garage.’ He was like, ‘No, I didn’t buy it.’ Like why not? And the gentleman said, ‘Well, the agent wants $115,000 for it as well and I believe the market value is about $114,000.’ And he said, ‘If you sell that property for $114,000, I’ll buy it.’ I sat down with the gentleman and I said, ‘It doesn’t really matter, that one thousand. Market value is subjective by itself, but either way what I’ve learned from my father is in a longer period of time, it really doesn’t matter! Would you like me to lend you this $1,000 so you can buy this property?’ And the gentleman said, ‘No, you don’t understand. It’s about principle and the principle is that it is $114,000 and I’m not going to buy it for $115,000.’ So he didn’t buy it. And because he is a very good friend, I did a big favour to him – they sold it and it came back into the market for reselling about six to eight months later for about $179,000 total. So I’ve just bought it and he said, ‘Oh Munzurul!’ I said, ‘What are friends for?’

A moment where Khan experienced a shining a-ha moment in his career and property investing experience was when he set up what seemed to be a ‘crazy’ plan for his future.

Back in 2005, I was randomly purchasing different levels of investment properties up until 2005 and had about five or four investment properties at that stage. And I remember it was around that time that I suppose to some extent understood my goals, specific, measurable, achievable, realistic and timely. So 2005 I sat down for the first time and I said, ‘Why am I doing this?’ All of the purchases up till now have been made for purely personal reasons but are pretty random sort of purchases, all of those. Yes, there is a bit of research and so forth, but there is no goal – why am I doing this? What are my goals? So 2005 I sat down for the very first time and I said, ‘Let’s establish my own smart goals.’

By the end of 2010, I would like to achieve this – one, two, three, four, five. I established five very specific goals for the next five years and I thought, ‘Goals are good but goals need to be in concrete, in writing. They need to be somewhere where it stares back at you, so you can’t hide away from them. You can’t leave it in the ‘too hard’ basket or you can’t leave it in a ‘non-existent’ basket, so to speak. How do I make myself accountable? Who are the people that I really want to make myself accountable to? So it’s my wife, my parents, my in-laws. I spoke to all my family saying that by 2010 this is what I want to achieve. Some of the goals were rather ambitious at that stage, I remember that I communicated all of it to my mum and my mum said, ‘What is wrong with you? Can’t you just live your life as normal? Go to work at 9:00 am, come back home at 5:30 pm and look after your family and your kids. You work for 50 years and you pay your home – what is wrong with you? Why do you want to do all of those things?’

So, fantastic. That is exactly what I wanted; now I’ve got two things. One is that I can make all of those people true in their own view, that I’m absolutely being crazy and leave with embarrassment; or, maybe I use that as a motivation and say, ‘Let’s go and achieve all of those, so we can show that it’s very often – as Albert Einstein says – that it’s your imagination which limits you. The sky is the limit! Aim for the sky and go for the sky.’ And the journey along the way, I hear it must be really interesting. So that was the real moment I suppose self-understanding, self-discovering sort of moment.

Reflecting on his journey since then, that mindset has been a huge part of what has carried him to where he is today.

I look back now into 2010 and all goals which I created back in 2005, I genuinely sincerely believed in 2005 that I would struggle at the very least and most probably I would not be able to achieve any of those goals. That’s what I believed in 2005. But because I said to myself, ‘I can have an option, because if I don’t achieve this I’ll make a fool out of myself.’ I look back into 2010 and I say, ‘You know what? I’ve achieved my goals, I’ve fundamentally achieved most of my goals.’ So I suppose the lesson that I take from that is that in our life on a daily basis, we do many different things. We have many priorities and sometimes the priorities interact with each other, they change over a period of time. There are many noises and very often the success is being created in your mind, where you yourself have to believe in that success that you don’t have any other option other than not being successful. And then you absolutely with your inner focus will go and act and act and act. You take your action, then along the way you look back and say, ‘Wow, that has been a journey!’

Now looking in hindsight, have you shared all of this with your mum and what has she said?

My mum still sort of thinks that I’m crazy! She still think that I should be spending my time at home and absolutely look after the kids, come home at 5:30pm. I’ve been very, very fortunate that I’ve got the best partner in life, I’ve got my wife we’ve been married for 17 years. And I can say quite loud and clear that all my success has been achieved simply because of the support that I received from her along the way. Without that support and without the family’s inspiration, it would not have been possible.

You’re going to have all the greatest ideas in the world and you can have all the investments, all the growth and everything else. But if the cash flow is not there to substantiate this, then everything arguably falls apart as a house of cards.

Use The Compound Effect to Create Cash Flow: Munzurul Khan

So in 2005 when I sat down and created my goal, saying that ‘Well in five years time, that’s what I would like to achieve,’ I remember that I sat down and said, ‘How? I actually have got no idea how to achieve that goal.’ So I said to myself that well isn’t it quite simple – if I don’t know how to achieve that goal, it’s a matter of learning how to achieve that goal. So what I did is that I went into the bookshop and I said, ‘I want to read every single book that I can in terms of money management, the wealth creation, the risk mitigation, the property investment. I want to read everything that I can.’ I started reading a couple of books, I read two or three or four and I said, ‘I know exactly what to do. I know what to do, this is what I’m going to do. I’ve got it! Brilliant! I’ve got everything sorted.’ And I read a few other books out of curiosity and I said, ‘Bugger. Now I’m confused.’

I looked back and I thought that these are all pretty successful in their own right, but they all seem to be doing it in a different way. So I read a couple of authors who I had a lot of regard and respect for. So I read into some authors like Jan Somers, Margaret Lomas, I read into someone like Steve McKnight, Robert Kiyosaki and the list goes on. And I read all of them and I said that each person seems to be doing it in a little bit different way. So I’ve got someone who’s sort of saying more in terms of the renovation and selling property through renovation. I’ve got someone who’s saying it’s all about the cash flow, is what we’re after. I’ve got someone who’s saying you must ask questions, I’ve got someone who’s saying that it’s about your development and you make your profit through your development. So you hear all of those and then I become confused – and then I realised over a period of time that everyone’s journey is their own individual journey.

So while all of those people are very successful in their own way, you as an investor need to find your own journey along the way; you need to see what business strategy which resonates with your circumstance and see if it works. And my circumstance was quite simple, it was Jan Somers that I looked into who basically said that it is such a difficult time for property investment to me in that sort of a summary manner is that it’s all about buying as many properties as one can, as early as you can, hold on to it forever provided that your cash flow is fine. And I said, ‘Well that’s simple, I can follow that. There is a whole lot of logic behind it – buy as many properties as you can, as early as you can.’

So what does this mean and how did he implement this through his learning?

It’s utilising the compounding effect, it’s utilising the time and the leverage over a period of time. Hold onto it forever – why do we hold on to it forever? Because what it does is it saves you the selling cost, saves you the repurchase cost, saves you the capital gains tax along the way, it saves you all of those costs. However, the fundamentals come back as long as the cash flows right – the cash is the king. You’re going to have all the greatest ideas in the world and you can have all the investments, all the growth and everything else, but if the cash flow is not there to substantiate this, then everything arguably falls apart as a house of cards.

So that’s the very simple philosophy that I worked. I worked with as much as I could buy as long as the cash flow could manage other bits of growth. But at the same time, I’m a big fan of manufacturing the cash flow and arguably the growth at the same time. I’m a big fan of trying to buy something where on the existing numbers it’s reasonably good enough at a bare minimum, but it has some twist. [00:05:41] And what that means is that with it you can subdivide, build something, whether it’s a granny flat, whether it’s a dual occupancy, somehow you can increase the cash flow along the way.

So it’s the books that I learned along the way and the books that I’ve taken the lesson from. And going through a whole lot of mindset books, something like Napoleon Hill as an example and it’s really on our mindset. Then when it came in after 2010 or so, a whole lot of podcasts, a lot of property magazines, a whole lot of forums. I remember that I was a big, big fan of the Somerset forum until it’s sort of been closed away at that particular point of time. So it’s the self-learning, if I may.

One particular book which Khan recommends investors read gave him the confidence to kickstart his property investing journey.

The Richest Man in Babylon. This is a book which was written back in the 1930s and it’s a book which is still publishing and been republished. And at my recommendation is when you’ve read it once, read it a number of times. I remember the first time I read The Richest Man in Babylon, I sort of said, ‘Why’s there such a big fuss about this particular book? It’s all common sense.’ The book says that if you own about $100 and you save about one-third of it, you have a little bit of fun, you spend your money, but you only do that with a third of the money. You own your $100, one-third of it goes into a savings account as if you never earned it. You leave with two thirds for your fundamental income side of it.

And I remember somewhere about this simple strategy and I thought, ‘That’s common sense, what’s the big deal about it?’ I read it, then I read it for the second time and I said, ‘Ah, I get it now. Now I think I really understand.’ I read it for the third time and I said, ‘I really, really understand,’ and found that this is a book that every time that I’m reading that book, in one shape or form I’m self-discovering myself – and self-discovery, in terms of the wisdom in the very simplicity of the common sense, knowledge and the common sense sort of a view. So that’s a book that I would strongly recommend. The English are not necessarily the friendliest, because it’s the old English, the Shakespearean English, but it’s fantastic. Napoleon Hill, a couple of his mindset books are very good. Jan Somers, those two books that I would strongly recommend that we do and all the rest of the authors all contribute in their own way.

Taking a third of your income to save towards investing is something that has worked for him and he endorses for other property investors. It’s all about delayed gratification.

It’s the principle, and the principle is that when you have a $10,000 pay rise, don’t increase your life’s standard expenses, in a way that $10,000 gets absorbed with the standard. So if your salary was said $100,000 and your salary has now gone up to $110,000, your salary is still $100,000 and you use the $10,000 to go into the savings account. And you know what, you would look back and would say, ‘Well, I don’t even feel it.’ And before you know, the savings are increased. Everyone has to have a little bit of delayed gratification at one point in time. Back in 1999, when I bought that very first property, I saved about $24.000 for about two years of my employment income at that stage and my income was very nominal at that stage. My saving was extraordinary. What was that delayed gratification has provided is an enormous opportunity.

So I’m a big fan of saying that, ‘Yes, you need to save a little bit of that, but I need to have a little bit of fun along the way.’ It’s about the accountability of everything that you do. It’s not about all work and no fun, because that makes it a very dull, not very exciting time. So you need to have a little bit of fun along the way but I think you need to save a little bit of along the way, you need to have very specific goals in your mind. That is what I want to do in about five years’ time – bring it back to one to a time and then sort of say, ‘For me to do this, what do I need to do?’

The best advice Khan has ever received is to give everything you want to do a solid attempt and trust your gut instinct.

One of the advice that I received is that the bucket list by itself is a fallacy. So what that basically means is that don’t have a bucket list – go and do it! Life is an adventure, go and absolutely celebrate every single day, whatever you wish to do give it a strong go. Yes, it doesn’t mean that you’ll give it a strong go in any diligent manner; you do your due diligence, you do all of your analyses and calculation as much as you can. But in the end, you go with your sixth sense. If the sixth sense sort of says that it sounds too good to be true, stay out of it. If the sixth sense sort of says, ‘You know what? I think that there are some prospects to it,’ give it a go.

After all the analisis as such, knowing that there is nothing ever absolutely guaranteed in life; knowing that, some of those things may not work out that well over a period of time. But always see that life as the glass is always half-filled; and why it’s half-filled is important is that the successful people see it all as success in their mind. They see there is no such thing as failure, they see that is a learning experience, they see that as a cost of future success. And such people never keep up. They say that the concept of giving up is in your mind. You might not have won the battle, but as long as in your mind you are still in the battle, it means that the battle hasn’t been lost. As long as you have a little bit of fun along the way, go for your passion, give it a strong go, do your due diligence. You will look back and say, ‘Wow, life has been fulfilling.’

Although as an accountant he is not qualified to provide financial advice, Khan shares some elements of his personal strategy which he has used in his own portfolio.

I suppose you need to consider your property as more of a business entity and think more in your mind it’s not a passive buy and you forget about it. Yes, you buy and you forget about it, but you still keep track of it to some extent. When you buy it, your initial due diligence is very important. You need to have a very clear exit plan. So what that means is that if I’m buying a particular property at a particular point of time, why am I buying it? What’s the purpose of that property? You need to ask that question: how does that fit into the bigger purpose of my own goals and objectives in my life?

So I look into particular property and I ask that question to myself – am I buying it because of its growth potential and future? Am I buying it purely because it provides me quite a bit of cash flow now? Am I buying it because this area will be rezoned in future and this price will double and triple over a period of time, I’m hoping? Am I buying it because I can manufacture some of those growths? You need to very clearly have your own vision of why you’re buying it and see whether it falls within that sort of property, that’s number one.

Number two is that I look into the properties purely on the numbers on day one and I sort of say that – and it is a very simple analogy as well – inflation is about 2 to 3% and that’s the RBS target and if inflation is about 2 to 3%, it’s a 5% gross return, means that it’s 2% real rate of return, as we call it. So to me, all this has been a rule of thumb in saying that I would prefer not to buy anything below 5% gross return, as a rental return of investment property. And I move from market to market where I get that 5%. So I look back to 1999 to 2003 when I only purchased in NSW, the returns were anywhere between 7 and 7.5%. It reached into 2003 wherewith Sydney properties you would struggle to get anything more than 2.75-3% return. And then I looked into it and it just doesn’t make sense – the inflation is 2 to 3% and if I’m buying a property where the rental return is about 3%, I’m really buying it for 0% real return.

It was around this time where he began looking into Brisbane, where the returns were at about 7.5-8%. After buying some property in this market, he diversified into Melbourne around 2005-2008.

Look back into 2008 and Brisbane became a market with a return hardly above 3-3.5%. I said, ‘That doesn’t make sense anymore.’ I stopped buying it in Brisbane, I stopped buying it in Melbourne and then I’d look back into Sydney and Sydney was back in about 2010, simply because the market took a little bit of correction between 2003 to 2010. And the rents as it is with inflation increased over a period of time in 2010. Sydney all of a sudden has become about 6-7.5% or so, I’m generalising, but the general term had become 6-7.5% and I said, ‘Wow, that sort of now makes sense,’ so I came back to Sydney.

I suppose the learning from my perspective thereon, the real perspective for me is that you still need to look through the return of a particular investment and see whether that returns that makes sense. And if the market is not in the right cycle, then you’re looking into a different market – you bring up diversification and you look into a different market. Over a period of time, the strategy of diversification is important that you need to have different properties in different markets, so when you have a cycle you’ve got some of your cycles, some of your private investments are increasing. Cash flow is important, your structure is very important – which do I need to buy, do I buy it on trust, do I buy super fund? What are the positives, what are the negatives and what are the ramifications over a long period of time? Am buying it for negative gearing? Am I buying it more for positive cash flow? What are the tax benefits – it’s very important to know loud and clear in your mind your risk mitigation is very, very important.

Again not financial advice, but in my view is that you need to have a certain level of buffer, so if things go wrong your interest rate increases quite a bit, your interest-only loan has now been converted into PMI. So you need to have a certain level of buffer over a period of time so that it can sustain itself. In my personal circumstances, I also look back into myself and I said ‘I need to make sure that I’ve got a certain level of insurance attached to it. I’m going to do a bit of a mortgage, I’m sort of the I suppose the hunter of my family, the main income earner, so in my case I said that income protection is something that I consider, life insurance is all the sort of things that I would consider.

To summarise, you need to put the macro levels of your potential investment into perspective.

So I suppose the comment which I’d say in summary is that when you buy a particular property, while it is important that you need to look into micro levels in terms of the pure cash flow, you probably need to look through the basic things, such as is it on the housing commission? Do you have an easement at the back of the property? Do you have a flooding issue? Do you have lots of trees in the backyard? So all of those things my crew analyses and while it is very important, you still need to look at the bigger picture such as your exit plan, your structure, your tax minimisation, your diversification, your buffer.

A personal habit which Khan attributes to his success is constantly learning, even in the subconscious.

I go home and my working hours at times becomes a little bit daunting and I sort of go home and I listen to quite a bit of Channel 602. And Channel 602 on the Fox is the business channel and this is the channel where you have many shows, like Your Money Your Call, so Margaret Lomas is an example, Chris Gray. And they’ve got some fantastic people who have come in there all the time.

One of the things which I generally do is that when I go home I maybe do a couple of things on my laptop, but I just leave some of those channels on in the background and by leaving them on the background they sort of run on their own and before you know it, you’ve just picked up a couple of things along the way. So it’s the ongoing podcasts, it’s the ongoing listening and it’s the ongoing learning over a period of time. It contributes quite a bit.

Yeah, I love that. I think it’s great that you’re able to absorb the information while you’re doing something else because the mind does wonders. I don’t know what it is, but yeah you’re right. Like if you went to sleep with a headset on with some subconscious information, I’m sure the brain is probably absorbing it while you’re sleeping.

I think it’s very often not to create an expectation in your mind. So I don’t listen to any of those things where I need to take three or five points out of it. I sort of say that it’s all fun. I mean that runs on its own, so that if I do pick up a couple of points, I do or I don’t. And when you take away some of those very stringent restrictions in your mind and let yourself enjoy and relax a bit, you actually get a lots more productivity for me.

Sometimes we look back on our lives and wish we could give ourselves some encouraging advice on how we can do better. So if Khan could chat to his past self from ten years ago, what advice would he give?

I would say to myself, ‘Enjoy your life. Balancing off your life with work, family and having a little bit of fun and doing lots of activities – the balance, the balance, the balance.’ Always work on yourself, how you yourself can improve over a period of time. Don’t worry too much about everyone else, let everyone else run their own race; just purely concentrate on yourself. How do you self improve over a period of time? Be ambitious, but don’t be greedy. Never cross that line where it sort of becomes greedy. Be ambitious. Appreciate the life a little bit and you would look back and you would say, ‘Wow that has been a journey.’

Due to a building compounding effect, he is excited about venturing into some small development and construction opportunities within the next five years.

Look I think it’s the opportunity – it’s the compounding effect. Because I’ve been investing for over 19 years, I’ve seen some enormous level of compounding effect over a period of time. And what I did is that I myself personally haven’t done a lot of constructions. I’ve got a lot of properties with construction possibilities; and just recently I’ve started some smaller construction of a granny flat, a bit of subdivision and so forth. I see myself over a period of time that that’s manufacturing the growth – that’s where I would probably truly see in some of my portfolios some of the potentials that perhaps I can utilise over time.

And that is exciting. So you’re looking more into property development, you’re saying?

At the level which I’m comfortable, in the sense that I’ve got a property as an example that I can build in about 450 metres. That to me is rather too large, I have absolutely no idea myself but I’ve got a number of properties that I can build a little bit of granny flats and so forth. And assuming that there is a requirement, there is a need for the market, those sorts of things are what I’m interested in.

His ‘why’ has evolved over the years as his goals have changed, however now he is preparing for the future and making the most out of every opportunity.

I suppose if you were to ask me ‘Why?’ about 18 years ago I’d say because my father literally forced me to buy it, because I wanted to be at home with my father and I wanted the free accommodation. So that was the ‘why’, I bought it because he was the man! But that was 19 years ago. But at around 14-15 years ago, at that stage, I think the ‘why’ was more in terms of, ‘Wow, I’ve got all this potential, I can do all of those things.’ It was a little bit of financial need and a little bit of financial want, so to speak. So all the sort of things that I could do at that stage, I look back to myself now and I say, ‘Why?’ The financing need were a little bit behind, so it’s not so much a need, I’m very fortunate again with where I am.

I think to be the biggest ‘why’ at the moment is that I want to look forward in about 25-30 years time and I want to look back at myself and I want to say that in about 25-30 years I want to look back and see that every single opportunity that is being provided to me along the way, whether it is by the Creator, whether it is by myself, I have given it a go. Efficiency to me is very, very important. I started this whole podcast saying that I’m a big believer in no bucket list. So I don’t want to have a bucket list – anything which I wish to do I want to give it a go. It doesn’t mean anything silly or anything which is wrong. Anything which I wish to do, I want to give it a go so that in about 25-30 years I can look back at myself and say, ‘You know what? I’ve learned in this life never to harm anyone. Always follow the rules, but at the same time I’ve given my best shot to build the best version of myself that I could possibly hope for.’ If I can achieve this, then then I would think that life has been OK.

The best way to contact Khan to find out more about his accounting services is to check out the company website

Munzurul Khan is my name from Keshab Chartered Accountant. So you would find us on the Internet, Google search our website. Our office number is 02 9633 5511 – you’re most welcome to give us a call. In our first meeting with our obligation-free meeting and we don’t worry about any of the charge, we sit down for a good one hour to understand where you are, what you need and how we can assist. And then you will make a decision after that meeting. You’re most welcome to give us a call.

This episode was produced by Alex Cooper with narrations and interviews conducted by Tyrone Shum.

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