Feb 032016

Our Glencairn rental property is, because of it’s location, size and value, targeted at a certain demographic (by default I guess); typically that of the single mother or lower middle-class income earner. As a result, over the two-and-a-bit years we’ve owned and let the house, we’ve seen many cases of people living pay-check-to-pay-check, unable to pay the rent as soon as their employers make a late payment or they loose their jobs.

Not nice. Not for them and not for us as landlords!

These cases often have me pondering our own situation, our liquidity and our own ability to survive a job loss or a temporary loss of salary. (The issue that clouds my thinking sometimes is the bond debt.)

So, we’re not in the same situation by any means but if we were to max out the bond (I. E. Take the full R1.6M allowed) Then we would have zero means of getting ready cash in an emergency. All our reserves are tied up in assets and investments that, while they can be sold or borrowed against should the need arise, would all take a while to liquidate and would all most certainly take a knock in value with a depressed market and economy. That is, I believe, my greatest concern with the way we are funding UCT this year – we’re greatly diminishing that “buffer”.

A worst case scenario for us in the present moment would be a retrenchment; with UCT fees to pay and no desire to find another corporate Plato’s Cave. Such an event would have us scrambling to see which options suited. There would be three avenues of investigation:

1. Could we sell 253 for a decent price (akaR2.5M)?

*  This would kill the debt and leave us with R1M to R1.5M which would buy a little time but would quickly run out at current burn rates.

2. Could we rent out 253 while living in the cottage?

* The cottage isn’t yet habitable; we need some spend here still but we could live and build while income comes in from the main house.
* The hope is that this option would bring in R20k pm between 253 and 16deV (but it comes with risk and headaches as we’ve seen this month in Glencairn )

3. We could cash in unit trusts (R177k) and SESA shares (R35k?)

* Not ideal right now since the market is in something of a free fall (OM UTs lost about R10k in value already)
* The plus here is these are quick and easy to cash and could buy us time.

So these are our only real options (there may be others but right now I can’t think of any). Damelin is paid for all of 2016. UCT is paid up until mid-year, so as of Feb we’d have 4 to 5 months to make a plan or go back to work. If it did happen we would immediately need to rachet down our current burn ( eg putting Frank on notice, cutting travel costs, really shopping carefully, selling the cars, changing the medical aid options, etc. There’s not much space to cut but there are definitely possibilities). As an ultra extreme measure we could pause the PPS RA’S again but that would be last resort.

Bottom line is there is no way we can carry on at our current burn rate. We would have to make some hard decisions if we wished to do that – either more corporate slavery (if indeed that is even possible in sunny SA at present) or lifestyle killers (bye bye Glencairn).

It wouldn’t be pleasant but we could survive it…..I think (at least way better than our tenants).

We’re not quite comfortable with the stash but at least there is a workable plan. Need to keep the expenses low as possible and keep building the stash and the rental options.

We have no choice because I have this gut feel that the scenarios discussed above are way closer than we may like to think!

Do we give it all up for this life? I think so!

Do we give it all up for this life? I think so!

Mar 072015

While I yearn to be free of the “Shitty of Jhb” I’m starting to think it may not be that simple after all. One child will definitely not be keenly embracing a move to Glencairn, he that is in no position any time soon to self provide. The other is keen, but who knows…?

And so, as usual, my mind is spinning with scenarios and contingency plans…..

Assuming we sell up with our desired R2.5M in pocket [a number I suspect may be a little optimistic] and settle the current bond, that leaves R1.5M invested. Roughly calculating on the 4% rule shows this lump sum giving a monthly income of around R5k pm. Not all that exciting!

The other option is to get over our emotional attachments and put the place on the rental market. I’m pretty confident that we’ll pull in a [conservative] monthly rental of R12-14k for 253. So, on the face of it it appears to be a no-brainer! After all, it’s double the monthly income and, if it doesn’t work out longer term, we will still have the option of selling up.

Main challenge obviously is we still need a place to stay, so thoughts are turning to the next big project…..

Draft plans for an off-grid cottage

Draft plans for an off-grid cottage

I see Sand’s eyes light up at the prospect. This is something we can both immerse ourselves in. The beauty of it is that the basic structure is there and the project can be tackled on day at a time, spreading the effort and the cost over a couple of years. We may even get a slot on Amazing Spaces or Grand Designs at the end of the day [ha ha].

We are already doing this in Glencairn, renting and living downstairs, so it’s a short mental step to do the same at 253. A car here, a car there, R20k rental income every month to pay for flights and we’re all geared to take life into the next phase. It opens up option to work in Jhb still but live more by the sea. It solves many potential family housing issues. It seems to have a lot going for it. The more I think about it the more I’m convincing myself it’s a worthy path to follow.

We may go for it and then we may not. Either way we can’t loose. If we do eventually decide to sell up, the addition of a rental unit on the property will only increase the sale value. Besides, Sandy needs a decent construction project again! This just may be our next 2-year DIY challenge!

Dec 082014

Assets are there for one purpose and one purpose only – utility. They are there to provide income, to provide shelter, to provide for life. An asset un-maintained is an opportunity wasted.

An often overlooked asset is earnings ability. Stepping off the corporate treadmill is a choice that could drastically affect this asset, a conscious choice to trade the income for a better quality of life?

The real question at the moment is how best to utilise the “salary” asset. A second rental house? There is risk – risk of debt but more so, risk of not feeling the ability to step out. But maybe, if managed correctly, if purchased well below resale value, if “guaranteed” rental income covers the bond, then just maybe it’s a risk worth taking at this stage?

Lets see if they accept a ridiculously low offer….!? Is this a con?

Our strategy of dealing with this has evolved over the years into 2 basic areas: i) limiting Our spend & ii) developing self-sufficiency. We’re not in the same league as extreme preppers but can certainly see value in some of their philosophies.

The big question for me is how to still further decrease our dependancy on the system? There are risks everywhere but I feel the risk of economic bank failure greater than corrupt politics. To have all ones eggs in the markets is perhaps too risky at this point in world history?

To be honest, we have achieved some measure of success in isolating ourselves. The bike is a good example, a tool that buys me time in this horrendous traffic. As with all things though, it isn’t without risk. It’s just simply that, for me, the risk is worth taking for the added time freedom it brings me. and by careful riding I’m feeling the risk reduced and manageable.

On the financial front I currently have the luxury of the “earnings asset”. I’m wary of using it to it’s full extent by going into more debt for another rental. The top three perceived risks being i] more debt will restrict my freedom; ii] don’t have the heart for tenant hassles & iii] dont want to continue my coupling to the Shitty of Joburg. But, as with the bike risk there are ways of mitigating, reducing to acceptable levels, the risk.

Not all debt is bad, especially for a rental. If we stick to the plan, buy low, keep the rnovation costs low, we’ll have an asset we can either sell if life turns too hard or that will give us an inflation linked income, decoupled from the financial markets and the banking world. In addition, if S gets her way, our anchor tenant will be quite reliable because she controls it. Plus, B’s future digs are sorted. There are some negatives but the longer-term advantagae seem to far outweigh all else.

Maybe another rental house is not such a bad proposition? It’s just a pity that it seems so contrary to the plan to ditch Jhb and head for the ocean !? It does however provide some positive options, that of keeping the current earnings potential [both S and myself] and providing B some sort of ongoing step into life.

By all means, plan, but don’t behave as if the plan is set in stone. Agility is key.

Dec 292013

The average middle-class South African just doesn’t get it – at least not the one’s I know.

I have a work colleague, from a previous life, who reinforces this view.

A Facebook post I wrote: “Providing your own manual labour on a renovation sure saves you money but it’s a two edged sword. You end up with a greater emotional attachment which makes it that much harder to turn the place over to unknown tenants.

Solicited the following reply: “What I have learnt is only fix the things that will get u decent tenants and keep the property value. It is always tempting to fix it like u would want it if u were living there but thats the difference between an investment and a home

Firstly that’s missing the point. I didn’t say we poured ourselves into the building to make it a home. The labour I’m referring to has been purely painting, fixing holes, repairing what we can of what is falling off. None of it has been “to make it our home”.

Secondly, a house is not the most effective investment. There are better ways to make money. But as I’ve said before many times, you need to find some method of growing your money that works for you personally.

And thirdly, no matter what the world may think, we haven’t done to badly for ourselves doing things our way. I don’t see any of the “upwardly mobile” money grabbing MBA types and ‘business affectionados” living the way we want to live. And we literally are in a position to zero the debt and have a very nice lump sum to invest today if we so wish. I don’t see them being in a position to do that with their expensive new cars, nice comfortable and expensive houses in the most popular areas.

So, thanks for the advice but you’ll excuse us for doing things our way – like we always have and like we always will.


Dec 232013

I reckon we would have had to fork out another 300 to 400k for the Glencairn place if it was in the condition we have it now – basically just a new coat of paint, cleaned plug covers etc.

But, we have worked very hard for more than a week now…

So hard in fact that the first beach-front run this morning was a slog. We’re both a little tired out at the moment !

Nov 072013

That seems to be the overriding philosophy of the human being. Only me matters. If I can get away with it, or at least believe I can, then let’s give it a go.

100_1502 resize and rant

Then, either the previous tenant or the owner or both thought we weren’t getting enough for our money and decided to leave us a little something extra. Sweet of them !

100_1577 resize and rant

And it seems like the rental agents, while saying all the right things about damages deposits etc, have actually refunded all the money. So I’m unsure whether we are going to end up paying or not at this stage.

Only me!! That’s all that matters.

Well, I don’t want to be that way. I want to be a person, that while not a huggy, kissy, wanna-be-your-friend person, still does respect others, considers them as fellow travellers and doesn’t take advantage of them because I think I can.

But. I do wonder if I would feel so charitable if they were in front of me right now?


Sep 012013

The underlying myth of the current world economy is that of scarcity. In a zero-sum game, whatever I win needs to come from someone else. Thus, the overriding behaviour to gather and protect ‘what’s mine’ at all costs.

This scarcity mentality extends to other fear-driven sectors. For example – insurance. While some insurance may just be prudent risk management, on the whole, it’s an industry driven by the fear of loss.

Retirement planning is another sector heavily fear-laden. The fear of ‘Will there be enough’ has spawned an entire industry of scare-mongers, preying on that feeling, throwing huge numbers in front of society. The effect is probably twofold: some earnestly and fearfully try and put more away while others, fearing the inevitability and unavoidability of poverty, throw all caution to the wind and just spend it up today.

Assuming the future is exactly the same as the past, I guess you could then, with certainty, put a plan in place, follow it and be certain you will have enough to live out the rest of your days. Anyone notice the faulty assumption there?

Bottom line, no one know exactly what tomorrow will look like. Charles Eisenstein in “The Ascent of Humanity” believes that the current world system is unsustainable and due for total meltdown. In the last decade we’ve had the ‘dotcom bubble’, the financial and housing market crash and an unprecedented rise in the cost of living. He may just be right…!?

Anyway, over-planning for the future at the risk of not living today is short-sighted and just plain stupid. Also, I don’t believe that saving for the future and personal finance fits into a ‘one-size-for-all’ mould. It is ‘personal’ finance after all. The choices you make, the habits you form, the savings vehicles you choose – none may make purely financial sense when analysed on the numbers alone. But, if they don’t resonate with me as an individual then they also don’t hold much appeal.

So, the Peninsular rental, from a pure ‘investment’ perspective is probably not one that may offer the best financial returns in the long run. But that’s not the point. The expected lifestyle and enjoyment returns are never factored into the paper sums and that’s more of what drives us than pure dollars!!

And …. physical land may just be a little more resilient to a financial “bubble-burst-event” than stock-market shares or money in the bank.