7% p.a. gross ain’t that bad

Bought for $7.25 million in 2008 and hopeful of a $17 million selling price in 2023.


It’s all in the way the story is written and in turn, how it’s not.

This result would equate to a 7.1% compounded annual return……

while not yet deducting for stamp duties, maintenance or operating costs and (if there were) any borrowing interest costs or renovation and improvements since 2008…..

and this, in the most exclusive suburb, in one of world’s best performing real estate markets.

This is not a sleight on the property owner (for surely they bought well in 2008), rather it’s a critique on how the media frames the prices which marquee properties are sold for.

I’m encouraging readers to just ponder the mathematics before being wowed by a journalists figures.

Although, I can’t resist a snippy comment.

If one bought shares in the company which employs the gentleman owner of this property, (with an approx. 2008 average stock price of $5), then the annualised compound return (REA stock is now trading at $122) sits at 31.8%.

While both are concentrated ‘bets’, I’ll await the customary response that ‘you can’t wrong with property’ and ‘at least, I can touch it’.

For a topical reference, this other marquee property in the same suburb was bought for $108,000 in 1968 and now seeking a selling price of $45 million.


The compounded annual rate of return is a more impressive 17.7% p.a. and awfully prescient from one of Australia’s best investors (and most classiest organisations).

Although, that was then.

What if we optimistically assumed a constant 7% compounded annual return for both sample properties over the next 15 years (not 17% p.a.and nor for 55 years), could they respectively be worth $44 million and $115 million in the year 2038?

Surely, in many asset prices, the ‘fat part of the trade’ has been had, in those past days of lower interest rates and some degree of FOMO.

February 27, 2023

by Rob Zdravevski


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