Archive for October, 2012

The Property Investment

Friday, October 26th, 2012

Regular readers of these blogs would not be surprised to know that I’ve spent a bit of time with our pest inspector, Greg, over the last 12 months. On his most recent visit he told me about the situation his brother-in-law has found himself in.

The brother-in-law has an investment property in Brisbane and, not one to trust a local pest inspector with such a large asset, he contacted Greg to get him to check over the property. Greg lives in Queanbeyan, NSW, just next to the ACT border – a bloody long way from Queensland’s capital city. Nevertheless, Greg really knows his stuff so his brother-in-law figured it was worth having to reimburse Greg for the return trip in petrol money.

Before Greg arrived at the property he sent a courtesy text message to the tenant to give her the heads up on when he’d be there. He received a very curt reply. Things went from bad to worse when he arrived and quickly realised that the tenant was quite obviously on drugs. Her partner arrived a short time later and a decent sized barney ensued, making concentrating on the job at hand difficult. However, even with these distractions, finding termites was not hard. They were everywhere.

A quick call to his brother-in-law and Greg was able to pass on two pieces of bad news in one go – “Sorry mate, but your tenant’s on drugs and the house is being eaten.”

The tenant was given her marching orders, but not before she (or her partner) left their mark on the property, literally. Greg had another visit after she’d been evicted to discover a bunch of fresh holes in the walls, and that the places where the furniture had been were hiding even more evidence of termite infestation.

So not only has this poor landlord been hit with the triple whammy of bills for treating the termites, fixing the damage from them and also the damage from the previous tenants, but the bills have arrived at the same time as the property is no longer making any income.

If you think I’m telling you not to invest in property, I’m not. Property is a good asset class to have your money invested in, if you go about it the right way. Having several hundred thousand dollars in one property leaves you open to a huge amount of risk. There is a lot of evidence to show that investing in property trusts is a much better way of spreading your money, avoiding the high entrance and exit costs associated with direct property investment and getting a better potential return.

And trusts don’t get eaten by termites.

Pay Day

Saturday, October 6th, 2012

Last weekend Claudia and I had family stay with us a few nights in the form of my sister, her 17 year old son and 15 year old daughter. Whenever we catch up there are invariably a few card and board games played, and as my niece and nephew get older their enthusiasm for playing is not waning. If anything, they’re more and more keen every time.

This visit we had a game of Rummy (which Claudia is a wiz at), Canasta (which I am normally good at but I must’ve been having an off day, or the temperature wasn’t quite right, or the walls were the wrong colour, or perhaps the cards were the wrong size or something) and Pay Day.

If you’re not familiar with it, Pay Day is a board game that’s been around a few years where once around the board is a month. Each month you get mail (mostly bills and advertisements) you can buy insurance, play the lottery (receiving a free ticket), gamble against the bank or your opponents, go into debt, save your money in the bank or take up the opportunity to invest in various products. At the end of every month you are paid $375 (minus the amount of your bills) and may have to pay 20% interest on your debts or receive 10% interest on your savings.

The game we played involved myself, my favourite nephew (yes, I only have one) and my favourite teenage niece (you guessed it, none of the other six nieces are in their teens). We played for about an hour and a half with myself and my niece going into debt and my nephew slowly accumulating cash, mainly from taking up the offer of investing.

The approach the siblings took to the game was quite different. While my nephew was willing to invest large amounts and wait ‘til he landed on the square that allowed him to cash them in, his sister considered it to be too risky. She was more willing to gamble her money in a way that saw the odds of her winning big bucks to be 1 in 3 (and the chances of blowing her dough to be 2 in 3). After 90 minutes she threw the towel in and headed for bed, leaving my nephew and I to go head to head.

As the savings we accumulated grew it meant more interest was being paid at the end of each month which in turn led to a conversation about the money my nephew has in the bank. I explained to him that if he were to seek a savings account with a higher rate of interest, then the money he is saving for his first car would accumulate faster. I told him that real life worked just like the board game.

And it clicked. I actually saw in his face the moment when he got it – when he grasped the concept of saving, investing and compounding, and how much easier the game is to play when you can afford to pay your bills. It was great, not just to be able to play with loved ones, but to pass on an ever so important message.

Now I just have to play the game again with all those nieces. (Oh, and for the record, he beat me convincingly.)