Hank Hong came to Australia from Vietnam, growing up in a household where saving was a vital part of survival, but his success as a property investor came from the opposite side of the coin – by borrowing money.
He shared: “My parents (came up) around the '80s and they’re big on saving. When they came over, they were blown away by Australia. They loved Australians. The Australian dream was buy the home, pay off the loan. So even today, my parents, they have just the one house. They’re happy with it, and it’s worth $1 million, because they bought it over 30 years ago. They save, and they save.”
“The next generation came through, I’d say, probably in the last 10 to 20 years. They’ve come over and they’ve started to invest a lot more. It wasn’t as easy to buy the home anymore. It’s what we’re seeing right now with the current generation of Australians. I [personally] have no issues with debt,” the property investor added.
While he grew up in what was referred to as the “saving culture”, purchasing his investments with cash for the first few years, Hank learnt to shift his mindset to become successful in property investment.
According to him, his background in mortgage broking has helped him open his mind to more flexible ways of investing, as well as the difference between a good debt and a bad debt.
Hank said: “When I was growing up, we’re big on no debt. I bought my first two cars with cash, and all that kind of stuff. Then, being in mortgages allowed me to understand that there’s good debt and bad debt. The good debt allows you to leverage to get more assets to build a better future for yourself.”
“[Then], there’s bad debt. Getting a car loan for $20,000 when you’re 18, probably not the best idea. Playing in shares, building up a deposit so you can get an investment property, good win. It’s a big mindset that’s been switched over from the older generation to the newer generation,” he added.
However, from time to time, Hank still gets rewards from enjoying “the best of both worlds”.
He said that next to understanding the nature of debt is learning to be responsible for repayments, therefore, investors must avoid borrowing money they cannot repay.
Growing up in a culture of saving has helped Hank understand that while it is truly convenient and, sometimes, even efficient to borrow money for investment, it is still important that an investor know how to manage his finances well in the midst of all these different payment options.
“If you've got a $20,000 car debt, your borrowing power now shoots down to maybe just under $300,000, which pretty much locks you out of every property in Sydney, and probably quite all over the other place. So you’re 18, do not get a car debt. Get a $2,000 Corolla and drive around in that. Save your money,” he said.
Hank added: “These days, kids – they're getting smarter. I get lots of clients call up while they’re in university, or the parents are going, ‘Go talk to Hank, because Hank will show you this and that.’ I’ll sit there, and I’ll go, ‘Don't buy the car. Don’t get into credit card debt. Here’s your funding position – save up this money and come back to me in 12 months.'”
“If you’ve got $2,000 to $3,000 left on your car loan, just knock it off. Then go get a home loan. You can still show it to the bank, ‘Look, I’ve paid off my debt exactly on time,’ but the bank would rather see I’ve saved $20,000 in the last three or four months. That shows a person that doesn't need to leverage debt, and again, (there’s) good debt and bad debt,” the property investor concluded.
Tune in to Hank Hong’s episode in The Smart Property Investment Show to find out why he invests in all kinds of different structures and how this benefits his ultimate wealth creation goals.