Hi, it's Finance and Life Lesson time. I was going to put this on the second channel as a quick dirty video, but I think a lot more people uh, would like it on the main channel and I've given that a main number as well because it's quite important stuff because it has to do with uh, my lab moves and everything. and the finances behind my lab moves. and how well I made a bad choice about uh, six years ago that I'm going to show you exactly how and why I pretty much, um, diddled myself out of 400 000 dollars and is this is kind of a response to uh, Louis Rossman's video? Hi Lewis, Um, who does you know? Excellent like you know, as well as Rosman Real Estate and Macbook repairs.

you know, financial life lesson? Uh, kind of things. and I'll link this video in. Um, and it's how he made a big mistake. Oh, he thinks he made a big mistake move into his, uh, new office that was all part of the Rosman Real estate uh thing and how it ultimately cost him a lot of time and grief and also about two hundred thousand dollars.

But I can one-up him here and he's kind of like, you know, beating himself up that he didn't uh, like, follow his own advice and stuff like that. But anyway, he did move just before covert hit and absolutely nobody predicted covert. So you know he lost all his passing trade and stuff like that. And anyway, go watch the video, I'll link it in.

it's great stuff as always from Louis. so this is kind of a follow-up He lost Uh, 200 000 doing a lab move basically? Well, I think I can double that. I think I can show how I lost about 400 dollars potentially and this is not me. Uh, you know, regretting the decision.

That's like I made the decision at the time. I'll stick around. At the end of the video, I'll tell you actually why I made the decision. Um, that I did.

But it's more about just me showing realistic numbers of a choice I made six years ago and how those numbers are through the last six years and over the next, you know, three or four years, Um, will turn out that yeah, it's cost me 400 000. Not bitter about it. I had my reasons for my choice at the time, and you know I'm happy with my current financial position and and a lot in life and my lab here and everything else. But anyway, let's go through it, shall we? I've got a spreadsheet here.

Hopefully I've got everything right on the spreadsheet. It starts out up here. Basically, I I had a choice back in 2015. It was actually mid 2015, but we'll assume it's the start of 2015.

And this choice was to buy an office right behind that wall there right next to mine my current 50 square meter lab. and it came up for sale in 2015 for 330 000. And that's uh, the figure that we've got here. So the choice was whether or not to buy that unit or not buy it basically and we'll see how not buying it actually resulted in me having to rent two other places and potentially piss away.

Uh, rent money and stuff like that and of course get flooded and all the rest of the fun that went along with uh, moving. So but Spoiler alert. I made this life decision not to buy. So all this stuff on the left hand side is the not buy calculations and all this stuff on the right hand side here is if I had bought this unit 75 square meter unit next door.

Now I've got 50 square meters here. If I bought 75 square meters next door, I could have like even knocked out the walls. Um, there's no strata rules against that. I could have had a gigantic 125 square meter lab.

So what I've got is basically uh, the dates down here 2015 each year 2016 and I go through bulk calculations for each year down here. So I calculate on the left hand side here, the implications of me not buying an office and on the right hand side, me buying this office every year and I've actually extended it right out to 2024.. Now of course I own my own office here. I bought it a long time ago.

it was a really good choice. I did follow my own advice back then and I've done a video on being your own bank and I'll have to link that one in as well. It's a bike ride rambling video, but it's quite pertinent. And basically being your own bank is.

Uh, I put money into my home loan into what's called an offset account and then all the money. As I was paying off my home loan, it reduced the interest rate and to build up cash in my house my asset that then I can withdraw. and I did. to actually buy this office.

I bought this office outright in 2011 with the cash that I'd built up in my house. So I own this from day one and I still own it. Uh, today. and then we quickly, uh, paid it off.

So I I own this office 50 square meters. it's all mine. They can't boot me out. so for each choice, I've got the expenses.

It's costing me every year in terms of our outgoings which is the basically the strata fees like for the building, the office building that I'm in and that includes things like you know, cleaning, lift maintenance, and just upkeep on the building and you know everything else. And then also because I was actually renting for four years, I rented two different offices as uh, long time viewers will no doubt know and one of them got flooded of course. So that's for my not buying decision, but for my buying decision. I've also got large expenses.

You can see already see that they're much larger because you've got four percent interest on the 330 000 to buy the unit, you've got more outgoings because I've got bigger space, and then I've got extra repayments And you know, stuff like that, so this is not going to be a definitive like buying is better than renting kind of thing. although right up front. That is my general advice in life if you can buy. But of course everyone's circumstances are different and really, there's no way to make the call unless you're looking at your own individual circumstances, your business, your type of business, your cash flow, your personal circumstances, and all sorts of, uh, stuff like that, and you're starting base and everything else.

But right? So next to that is just the explanation for the expenses on either side. And then, uh, the next column is the cash or the assets that I'm accumulating each year over time in terms of renting. I'm obviously I didn't buy the unit, so it's not appreciating value, but I'm saving a lot of money in the interest and everything else. So I'm accumulating cash basically and on the right hand side here.

Of course, because you're buying an actual asset, you're buying a property. Then it's worth the value that you bought it, and then it can either go up or go down depending on the market factors, and we'll take a look at that as well. And then at each year, I've got the Uh cash profit. In terms of the not buying um, and basically just renting places, I've got a Cash cash profit every year.

Beauty and that's really great for businesses that need a lot of cash flow and I actually need a lot of cash flow. I've uh, talked on the amp hour. but how about one time my business actually just suddenly boom ran out of cash, almost all within a week. it was almost overnight.

Uh, practically ran out of cash because, well, I didn't do the bookkeeping properly and I forgot about things that I had. You know, big multimeter orders that I had made and committed to and stuff like that. And all of a sudden I found myself without any cash, right? Cash slow can kill businesses real quick, but when you buy a unit you don't have, well, you still have cash flow issues, but you actually have debt. So over here.

If I bought the unit, I would have been in debt for the 330 000. but I would have had a much bigger lab for every year 2015. right through to now and into the future. I would have had 125 square meters which is way bigger than any place I ever had over here.

So I go into more detail in 2015 here. This is the first year just to explain what's going on here. Now for the no buy uh situation. I own this office.

My only expenses is five thousand dollars outgoings here. That's it. Very low expense, uh, business by not actually buying a property obviously. But if I had bought the unit for 330 000, I'm going to assume a 4 interest rate and that that interest rate doesn't change over time.

Realistically, it might have dropped a bit, but yeah, it doesn't matter. But as I mentioned before, I was going to be my own bank for buying this place. I would have actually bought this place next door outright for 330 000 because I had that cash built up in my house so I could have simply withdrawn that and got really cheap home loan interest rates as a part as opposed to getting like a commercial uh, property uh, like, or a business loan uh rates or something like that which are much higher. They can be more than double.

It's yeah, and you've got to put a lot more money down. and it's it's like horrible. So I highly recommend if you can become your own bank, work your way into a position in life where your own bank and you can withdraw money. Anyway, I would have done that so it's four percent interest rate that works out in 2015 to 13 200 so just pissed away in in interest right? So right there, that's almost almost like three times like two and at least two and a half times my expenses over here.

So you can see that buying a place for a cash flow strapped business, yeah, you could be in trouble. In fact, it may not be an option for you, but it wasn't option for me at the time and I didn't take it. But we'll see about that shortly. Anyway, my outgoings are now more than double what they were over here because they're twelve thousand dollars because the outgoings are based on the size of the unit.

So instead of having 50 square meters here, I would have had 125 square meters total. So 5 000 here and next door would have been about 7 000. Much more. So right right off the bat, I've got 25 000 in expenses every year just because I bought this property.

It might go. Oh geez, I've made a big mistake buying this property. Look at all these expenses. And sure enough, if you had a cash flow problem, you could come a gutser on that.

So you've got to be careful. You know you can't just say buy-ins better. It depends on your circumstances. But anyway, Um, yeah.

25 000. Now because I am smart, I am not just going to pay off the minimum interest in a property. I am going to use my property as an asset to become my own bank. So I want to put money back into that asset and build it up as well as as we'll see in a minute reducing the compounded interest.

which is a huge factor as as we're going to show fairly dramatically here. Okay, so I'm going to put an extra 20 000 cash every year into that loan so I can actually reduce it. That's why the I started out with three hundred and Thirty thousand dollars, but by the end of 2015, my debt is no longer three hundred Thirty thousand dollars. I've paid off an extra twenty thousand dollars into that and it's now only three hundred and Ten thousand dollars.

Debt. Got it? Now I'm gonna assume that over here, I am actually gonna commit the same amount of money to, uh, cash in my not buy solution over here. Okay, so I've actually saved there. it is.

I've saved Thirteen thousand dollars. I've saved Twenty thousand dollars in that, um, extra payment, right? So they're basically at thirty three thousand dollars, right? But I've got expenses of five thousand and profit is income minus expenses. Income in this case is just the cash saved by not buying the property. Okay, so I made a cash profit that year of twenty eight thousand Two hundred dollars as opposed to having to pay out or wasting 25 000, right? So you know it's You might think that renting's better, but wait until we get to the bottom of this.

Okay, so that's how it basically works. and in the first year I only had 50 square meters. That sucked because I had myself here. At the time I had David as the intern.

I, um, I think we're all doing all the packing and shipping. Then later I got a packing shipping person uh, sues to help out part-time But yeah, we were really cramped in this 50 square meters. So right off the bat, I've you know there's a disadvantage by not buying. I simply had less space.

So the next year comes along and I decide no, I can't handle this anymore. I don't have a window, I don't have a door I can open and get fresh air coming in and we need more space. So screw it. I'm going to rent a 33 square meter office.

so I have the 50 square meters here and the 33 square meter office in the business park. So I've now got an additional 22 000 that cost me in rent. I was pissing that away every year, but I had a bigger space and a nice window and a view of the mountains. It was pretty schmick.

I don't sort of regret that, but you know it was. It was pretty nice. Speaking of which, if I actually bought next door, it doesn't have a window either because it's in the building like it's in the middle of the building. like this.

technically out the front door. You can kind of like see the sky and stuff, but it's not. It doesn't really have a window and certainly doesn't have an opening window to get any fresh air or anything like that. So it's It's One of the reasons that I didn't buy next door is that didn't have a window.

So anyway, I've now got 27 000 in expenses. So therefore my cash profit over here is only 6 200 dollars for that year. So I dropped dramatically when I got that rent. Oh boy.

Now over here because I would have purchased in this path in life. It's like that slide indoors movie. You know you choose a different path in life. And anyway, if I'd chosen this path, um, I would now no longer be paying thirteen thousand, two hundred dollars in interest.

I'd only be paying twelve thousand four hundred because I paid in that extra twenty thousand dollars into here like this. Remember, I'm reducing my debt paying the cash in there assuming you got the cash to do it. which I did. Um, so yeah, I would have probably put twenty thousand dollars in.

Realistically, I would have put all of my money into all my excess cash. in my business I would have put into there because like it's just an offset account, I can. a bank account I can simply withdraw at any time. There's no red tape, it just acts like a bank account, but it reduces your principal.

It's called an offset loan account here in Australia might be called differently overseas. But anyway, so it's gone. My interest rates already dropped because I put that extra payment in, and you'll notice that every year. Look at this.

It drops. It drops. It drops. It drops.

It drops right down to 2024. Well, in 2021. Right now, if I bought it, I'd only be paying 7 800, 7900 in interest and my debt has reduced from 330 000. Look, because I'm paying 20 grand off each year, right? And look, it drops fairly quickly by 20.

By now. Right now, I would have only paid, I would have only owed 172 000. and that interest drops. So you can see how now interest savings over here is less.

right? So it's less. but I have more cash available. So although the interest is lower, that means I have more cash available here To put in instead of 20 000 is now 20 800. So at so it this is the power of compounding interest.

Not only does it reduce my interest rate, right that I'm I'm paying by putting extra money in and then having the cash available. It compounds itself every single year. And this is how I got from 330 000 down to in 2021 172 thousand dollars. Uh, debt left? Uh, Like it's no.

Is it half? It's almost. You know, 45 Or something like that. You know, getting down towards half, you halved your debt in only what to like? six years by paying off a measly 20 grand a year? Because it compounds, right? That's one one of my number one tips. If you buy a house or an like a commercial office building like this, pay money into it like pay into it like crazy and try and get an offset account where the interest is taken off your principles.

and then you can withdraw that money anytime. It's a form of forced saving and then you have your cash flow available for your business. It's It's absolute killer, right? Don't put all the cash into your business. Put some aside into the asset, let it build up and reduce.

compound the interest rate and your payments. It it works miracles. Anyway, So I had to rent that place for two years. It was two year term so I committed and wasted basically forty four thousand dollars.

But I did get extra space and it was nice, you know, with the window and the balcony and everything else. But after that then David became a full-time employee and we were just getting like, you know, bigger, more stock and shipping. Um, you know I've got a part-time packing and shipping person so I needed more space. So we decided rather than renting a third space or another bigger space I was getting sick of like filming my videos here and editing in another off part of the business park and having to walk back and forth.

It was a pain in the ass so I decided no, I'm going to consolidate my 100 into a big hundred square meter unit. So that's what I did for two years. and that cost me forty thousand dollars a year. It was actually only thirty one thousand, but nine thousand of that was outgoings because the tenant pays the outgoings.

But anyway, yeah, so I committed to another two years. But what I did because I own this place. I became a landlord and rented this place out. so I rented that out for roughly 20 000 a year.

Okay, so the assets I've got. I've now got a rental income coming in. Because I own this place. I've saved my ten thousand dollars in interest over here.

I've also saved my twenty two thousand dollars over here. So now that's all effectively like income for the business so to speak. But I've got the rent, which is forty thousand dollars and I'm no longer paying the outgoings here because the tenant pays the outgoing. So the person who rented this place it was a lawyer.

um, paid my five thousand dollars a year outgoings for me. Which is great. Um, that's just how commercial, uh, property works here in Australia. So that only left me with thirteen thousand, two hundred dollars profit.

But that's pretty good. It was better than here, right? even though I had a bigger space and now I had a hundred square meters. But you know, I was like boasting about my 100 square meters. but it still wouldn't have been as big as the 125 square meters over here.

But at least this one had a window. But then again, you know what happened. It flooded. And that was.

yeah, that was really bad. Anyway, that's got nothing that's neither here nor there. So after the two years, of course, Um, at this point in 29 into 2019, right? Uh, David had, uh, left and uh, I went. Well, I'm not.

I don't need this whole hundred square meters to myself. It's it's just a waste. I'm pissing away. Forty thousand dollars a year.

The place bloody flooded. Anyway, it's hopeless. Um, and I just don't need all the space. So I've done a video on this how I chose, uh, the tie dust option to come back here.

In the 50 square meters, it was just me. So from then on, I only had my 50 square meters. but if I bought, I could have had 125 square meters. But once again, as you can see, in 2020, my money, uh, like, my profit each year jumped back up to 28 000.

and I've just done that for every year after that. Now here's one of the interesting bits of course about owning property assets like this. Not always the case, but this is what happened in real life. Here in 2015, it was worth three hundred and thirty thousand dollars.

But by 2021, right now, I can tell you that office next door is worth seven hundred thousand dollars. So I I just sort of fudged the numbers in here about incrementing about a hundred thousand dollars a year. Actually, fairly recently they've been going up like like a rocket, right? But yeah, this has more than doubled in value in like the five or six years now. The reason it did this is because, uh, the back in 2015, the metro went in the Sydney metro and there's uh, two, uh, train stations here in the business park and that, uh, increased.

You know, asset values and stuff like that. But basically our commercial property all across Sydney actually had a boom period during this time. So yeah, that realistically it would have been now been worth seven hundred thousand dollars and because of the compounding interest I was paying off, I would now have a seven hundred thousand dollar asset with only a hundred and seventy two thousand dollars in debt right now in 2021. If I had taken this path in life and bought that unit dull and from here on end through to 2024, I've extended to I'm just going to assume it's going to stay flat at 700 000, which I think is actually what will happen because the commercial property market has like, typically it'll have a long flat period that'll have a little mini boom and then it'll have a long flat period.

Five or ten years is not uncommon for commercial property. It doesn't always follow residential, uh, real estate. Commercial property is just a different beast. So what do we end up with at our two different paths in life here? Well over here.

By renting, I've ended up with two hundred and Eight thousand dollars. It's It's not negative. It's not red because it's negative. It's just different colors because it was, in this particular case, the wrong choice I should not have rented, even though after all this time, yeah, I saved some cash, which I could have put back into my business.

and a lot of businesses need that to put the cash back in. If your business needs that, then obviously you might not be able to buy because you need every cent to plow back into your business to buy stock. Uh, pay wages and improve your business and expand it, right? But in my particular case, I didn't really need that, so I effectively would have saved that in cash. So, but I would at the end of that at the end of the six years.

I have two hundred and eight thousand dollars. Beauty. But if I bought over this column here, I would have six hundred and ten thousand dollars, not not all in cash. Of course, it's in equity, right? But so there's seven hundred thousand dollars, Uh, in the equity in the property.

Um, but I only have 172 thousand dollars in debt, so I'm assuming that um, this actually goes to 2024 actually for another three years here. Um, so yeah, I'd end up with six hundred and ten thousand. It's actually slightly less than that. Uh, right now in 2021, it'd be a 700 000 minus 172 000.

But but anyway, in another three years time, I would have been 400 000 and better off if I had bought that unit and I would have had 125 square meters. Uh, lab space for all that time. So yeah, that was a dumb choice And a lot of people say, oh Dave, The Okay: the lab's worth seven hundred thousand dollars, but you can't sell it to get that cash. Uh-uh yes you can.

It's called an equity loan because you have the equity in the property. Uh, banks will typically loan you like eighty percent it might be, and that's for houses or residential real estate, but for commercial property, you might be less than you might be able to get half or 60 or something like that. For your commercial property, you can get that money back out and that's what I've got in my house. I've actually got two loans in my house that allow me are different lines of credit.

Uh, equity. Uh, loans that I can just pull it out and do whatever I want with. Like I said, I bought this unit here with the money I'd saved in my house and I could have bought the unit next door as well. And I yeah, foolishly didn't.

So back in 2015, could I have actually predicted that a commercial property would have gone up? Um, would it would have gone up from 330 to 700? 000? Well, yes and no yes in that. I knew back in late 2014 they had just approved the Sydney Metro and I thought that was going to improve prices here in the park. I knew it'd go up a little bit, but based on track record of commercial property for the last, if I bought this same unit right 330 000 next door back in 2010, it would have only cost about 300 000 back then For so for the five years previous to this, there was almost no gain in commercial property might have gone up like 10 or something like that in five years. That's that's not uncommon for commercial property.

so there was no track record of this business park having boomed like this. But I knew the Metro was going in. but I, it was all over Sydney Commercial property just happened to boom for reasons. So yeah, now if I want to buy that unit next door, it's going to cost me 700 000.

As I said, I'd have to sell this unit and I'd have to buy in like another bigger unit or something like that. You know I can't splurge out like you know, 800 900 000 for like 100 square meters or something like that. It's just nuts and because and it doesn't even have a window. So anyway, I'll tell you the reason now why I didn't buy uh next door A is that it didn't have a window.

like yeah, it was convenient next door and I probably could have knocked down the walls, but I probably wouldn't have Actually, because that would have given me the flexibility owning two separate titled offices. I actually could have rented this smaller 50 square meter out and moved into the 75 square meter and sort of like, done that repeatedly over the years as my business requirements. uh, change in terms of like, you know, staff and layout and you know stock and and all sorts of uh, requirements. I could have, like, you know, jump between having the 125 square meters and ah, no, I'm downsizing this year because the market's sort of flat or something.

I could have like rented this place out perhaps and then just went to the 75 square meters next door. So yeah, um, I probably would have done that. but anyway, it didn't have a window and I didn't want to and it seemed like at the time. Here's the other reason is that I would have had over half a million dollars invested in an asset in this one building here and I thought, oh, that just kind of gave me the heebie-jeebies a bit.

Um, that having all that money tied up in one asset in one building. And of course, with hindsight, it turned out not to be a problem. but at the time you know it was, it seemed like a lot of money and got the heebie-jeebies that I didn't know when the direction that the company was taking. I didn't know like David would come on full-time and I need all that extra space and stuff like that.

But yeah, um so that were my reasons is that yeah I I was so like wanted to have a better place with like a at least a window maybe uh like a big like a roller door shutter like you know they can do big stuff in what like a little sort of like garagey workshop area. and I've done videos on this um during all this time I've actually been looking for other places. I'm always looking for places in case a bargain um comes up or something like that. But yeah, I should have bought that place at three hundred and thirty thousand dollars.

That was dumb. So that's how I pissed away. Four hundred thousand dollars. So eat your heart out.

Lewis Rossman Two hundred thousand amateur. So anyway, I hope you found that educational and interesting. As I said, this is not a thing about you know buying is not always better than renting. But as I said in general my my general life advice would be if you can buy um and then pay it off like crazy, use it to become your own bank so then you can withdraw money back out So it's a good form of force saving.

And uh, then you've got the uh cash available for rainy days Like covert or rainy years? Like, uh, covert. And those business businesses that survived were those who had a cash stored away so that they could survive all these periods of lockdown and upheaval. So there you go. Like I don't really regret not doing it.

I guess it's not the right word, it's just I had my decision. I had my reasons at the time, it's a decision I made and well, you know that's just the end result. I went through the actual real numbers there. Yeah, I would have been four hundred thousand dollars better off.

So yeah, yeah, you know the stuff like this happens, you make your decision and you just get on with life. It's not a problem, it's just turns out yeah, it would have been with hindsight. Yep, would have been better. So I hope you found that educational.

And let us know in the comments down below. if you've got a similar, um, story, yeah, sure, what should I could have bought? you know, a place or oh no. buying a place was the biggest mistake I ever made because I ran out of cash and my business folded and ah, you know, etc. So it depends on your life circumstances anytime during this uh period.

Say if I had bought here, you know you can come a gutsa if you get sick. um, for example, or you have other, you know, life, uh, problems. something like that I don't know. Your partner partner leaves you and takes half your money or something, half your assets.

I don't know. You get screwed over by your business partner and stuff happens and things like that and well, you can, you know, come together. It's so over here, it's sort of. It feels safer.

Um, to have that cash available. So if you were worried about that sort of, um, stuff, you know renting might have been a better solution. especially if you can save the cash and things like that. But if you've got sort of like the cash to save each year instead of reinvesting in your business, then really, it's probably in general a better choice to actually buy the property and then put that in there and hopefully it will go up in value, won't always happen, could even go down in value, You never know.

But in this particular case, yeah, it went up a huge amount and yeah I would have been sitting pretty. But anyway, even if it went, even if it stayed flat at 330 000, it would still, I'd still be 240 thousand dollars up. I'd still be 40. you know, 32 000 up over where I was from renting.

So there you go. Hope you found that interesting and useful If you did, give it a big thumbs up and I'll do more of this. You know, life advice kind of stuff and life experience kind of stuff. Catch you next time you.