The theory was sound. The application had flaws: Methuen Rd

I bought a block of five tired flats on Methuen Rd, Avondale — four one-bedrooms and a two-bedroom, spacious, well built, walking distance to the Avondale train station and the bus links into the rest of the city. Flat iron roof, aluminium joinery, a fibrolite panel that had been up since the early 1960s — solid, and definitely not leaky.

I had a development pipeline running through my cross-lease sites at the time, and the advice I was working to was simple: start building a rental portfolio, and let the proceeds from the builds fund it, so the profit from flipping sites turned into a long-term asset base instead of just cash that came and went.

This was also the first time I bought from Ted Manson — now Sir Ted, a knighthood thoroughly well deserved. I was an admirer of what he built, from a distance, long before the honour caught up with him. At the time, Ted and his father Colin were the scene-setters of the residential market. Ted looked at every property that came up. Agents loved him, because if you quoted him a site, he'd be there within the hour, and if it fitted his criteria, he'd make an offer on the spot. He always built an on-sell clause into his agreements — buy wholesale, pass it on retail, and move to the next one. His model was catch and pass.

He'd bought this block for $260,000. My agent heard about it, and Ted's price to take over the contract was $305,000, with contemporaneous settlement. Retail valuation on the block was around $340,000, so I was still buying well — just not as well as the master. I asked if I could extend the settlement date. The answer was a firm no. That was the model, and I couldn't drop the pass.

I arranged funding through my solicitor's nominee company and financed the whole purchase. The rental return didn't cover the interest — the flats were negatively geared — and in pre-crash New Zealand, that was something banks and lenders were genuinely comfortable with. It wasn't a concern for me either: the builds I had underway were generating good cashflow, and that funded the shortfall without any strain.

The property itself was easy to manage. My rental agent achieved top rents thanks to the location and the condition of the interiors. We tidied the grounds, replaced the odd washing machine or broken curtain, and otherwise left it alone. The plan was to convert the flats to individual titles — lifting the value — and use build proceeds to pay down the debt until it was held debt-free, permanently.

Then there was the horse.

One of the neighbours — a plumber — rang me one day to say it looked like someone was butchering a horse in the lounge of the front unit. I didn't believe him. By the time I got there, an hour and a half later, the place was locked up and empty. There were paddocks with horses grazing not far away. The tenants had taken one, brought it back, and used the lounge carpet as their butchery floor. The carpet needed replacing. Even an easy-to-manage property can hand you a story you never saw coming.

I held the block for five or six years, through to the aftermath of the 1987 share crash, before I needed to sell it down under duress. It went for $350,000 — a real number above the $305,000 I paid, and above the $35,000 spent maintaining it. On paper, that reads like a gain. It wasn't. Years of negative gearing, funded by cashflow that eventually had to be found from somewhere else, meant the true cost of holding the block outweighed what the eventual sale brought in. I lost money on this one.

I drove past the block recently. They're still standing.

A good property and a good purchase price don't protect you from a bad financing structure.

What I'd flag for anyone trying this today: if your holding strategy depends on a second, unrelated income stream continuing indefinitely, you don't have a hold strategy — you have a bet that two things go right at once. The theory was sound. The application had flaws.