I would be considering the worst case possibility that the properties will together be worth no more than 1 million dollars and only fetch the same amount of rent in 10 to 15 years time when he wants to retire.
Not including negative gearing tax benefit, out of pocket of 500 a week is approx 26k per year. Ten years is 260k. So he would have trouble retiring on a loss of a quarter of a million.
Scenario 2, rent does grow to come close to paying interest after 10 years, but no capital growth. Outcome, he loses only 100 to 200k.
Scenario 3, capital growth only keeps up with wages growth/inflation. Properties might be worth 1.3 million. In real terms not worth any more than day one, but loan value reduced in real terms due to inflation. Say out of pocket same as scenario 2, he would then break even after stamp duties and other costs.
What makes you assume capital growth will be any higher than wages growth for the foreseeable future? Is it just because that is what has happened over the last 20 years? Your mate sounds like a zombie investor to me.
