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Say you buy 100 of real estate. It generates 4 income, which is approximately 2 net, and 7 capital gains each year. You fund this through equity and debt at a cost of say 8 a year. Your profit is 1 a year. If your cost of funds is lower or your returns higher, this gap will be higher, but...

No, this is already taken into account. Asset Funded by 100 100 Each year generates 4-2 8 7 --- 9

2. Long term returns includes average gains from value add activities. Obviously we all want to do things that will give us above average returns, including buying near the bottom of a cycle, positively add value, but by definition, half of us will achieve above average returns, and the other...

I'm not having a go at anyone or being conservative, just realistic. Think of it this way. Say the total gross return on real estate over the long term is 11% p.a. and 9% p.a. net (after property manager's fee, rates, maintenance, insurance, etc). Your profit is the gap between the return...

Don't be too hard on yourself. Obviously if you gear to the hilt and prices keep going up, you will look like a genius. The problem is that they don't. Over the long term it's hard to make money with Low Doc loans - the additional interest margin doesn't make it worthwhile.