Giving it away

I tithe. That means 10% of my income and capital gains is given away. That either occurs quarterly on trading income or on settlement for capital gains. I give sacrificially, if I don’t miss it I’m not giving enough.

Why? Because I think my gifts make the world a better place. I also believe that it is the obligation of the fortunate to contribute to society’s less fortunate. I also get better results when I’m tithing to when I’m not. The evidence for that is anecdotal and without scientific verification. 😉

The main reason I tithe right now is to answer the following question. When is the best time to start giving your wealth away? If I can’t give sacrificially today while I’m building the wealth how will I give once I’ve made it? And how will I know when I’ve made it sufficiently to start giving?

There is never a good time to start giving. Start anyway the discipline is worth it.

One learner at a time

When I learned to drive I was required to have a fully qualified driver in the front seat passenger seat. That “black licence” was required to be sober and responsible. That is good risk management on behalf of the community.

In poker if you can’t tell who the sucker at the table is, look in a mirror. That is good risk management on behalf of your wallet.

When investing make sure there is only one learner in the team per deal. Your team consists of you, your financier/broker, your lawyer and your real estate agent.

I made a mistake with these three units. I am breaking in a new broker, a new lawyer and it’s been a while since I bought three units at the same time — so I’m rusty.

I had a 75% LVR loan offer on the table from NAB as part of my professional’s package. But it needs me to tidy up some outstanding paperwork that is not good timing right now.

I heard of a broker who could organise finance for such small apartments easily. I casually mentioned this to another keen broker I know well, let’s call him Bob. Now Bob is a top producer for his firm. This guy writes loans. A lot of loans. This means he knows how to get things done.

But my requirements are outside the square. Bob is good, but he’s also new at it – a little over a year. So he doesn’t have huge vats of experience.

Bob tells me he can get me 80% LVR no probs. So I go with Bob. Three weeks later I get all the paperwork they want together and am running through the fees. Guess what? The extra 5% LVR will cost me 1% application fee, 3 months interest early repayment fee, 1.18% premium for the risk. So they’ll give me the extra 5% but take it back in fees! I pushed back and Bob found me another loan.

During the scary time in the middle of this I called the Experienced and Reputable Broker. He said 90% LVR, LMI 1.5%, three day approval, two week settlement. I’m meeting with him on Monday.

The lesson is one new driver at a time. Nothing is insurmountable providing there aren’t a dozen problems at once.

Hack Attempt #1

Someone tried to hack the site tonight. I don’t know whether to be angry or flattered. So if you show up one day and it seems like I’ve moved into the porn-biz you’ll know:
1) I’m 0wn3d by script kiddies (i.e. the site has been defaced).
2) Don’t hire me as your IT security consultant
Seeing as I don’t do any IT consulting anymore that should be enough warning.

That leads me to reinforce the message, this site is really for my own and your amusement. Therefore it is in constant flux and doesn’t really get a lot of “systems” attention. While I do wish I could find out what is slowing the computer down, I’m not putting a lot of resources into the server.

Credit Card Danger

I bought a strata unit with a credit card cash advance once. I’ve used the same technique for a deposit in a hurry. Until recently I was a fan of lots of credit cards with high limits — providing you knew how to manage a bank’s Debt Service Ratio (DSR) calculations.

You see, banks assume your credit cards are maxed out all the time and factor that into your borrowing limit. What if you listen to Paul Clitheroe, Robert Kiyosaki or other wealth advisors [like me? ;)] don’t carry a balance on your credit card? Surely that counts for something?

Often not. The major banks’ DSR assume you carry the limit because you can. Look up “contingent liability” someday. So if the DSR looks tight you might cancel or reduce your limits before applying for the loan.

Anyway I no longer favour lots of cards with lots of limits. You ask why (go on I’ll wait)?

Three little words…

…Fees, Fees, Fees.

I have been a Citibank customer for years. It gave me a nice feeling to have Big US Bank credit cards in my wallet. But US banks are “early adopters” of fees and then the Aussie banks follow.

In addition to annual fees and high interest rates, I have the priviledge of: late payment fee, over limit fee, foreign currency conversion fee and cash advance fee. Credit cards are not about convenience where a smart operator can take advantage of a system designed for balance-carrying sheep. The cash advance fee is 1.5% of the drawdown regardless of how long I keep the money.

Now Westpac is following suit with similar fees and my experience is the other banks can’t resist a good revenue stream.

Time to find a new source of quick cash.

Someone’s trying to screw you

I just go home from listening to Peter Holmes à Court give a casual talk at the Sydney Chapter of Young Entrepreneurs Organisation. I won’t reproduce his entertaining, inspiring and insightful comments here — if you ever get a chance to hear Peter talk, take it.

One point he did make was Someone’s always trying to screw you, don’t let it change you.

There is power in this zen-like state. There are crooks, opportunists, charlatans and even terrorists out there. We may be unfortunate enough to cross paths with a few. As a matter-of-fact it’s almost inevitable. But that doesn’t mean we must fret about it. We are big people now, with confidence to deal with whatever life throws up.

Take some risks.

PS Peter’s 10 points inspired a number of reactions in me. I’ll be posting on those reactions over the next few days.

Horse Trading

I sat in on an exchange between two very experienced businessmen today. What an education in five minutes. The Salesman and the Entrepreneur.

Entrepreneur: We bought these from you last time at $1.62. Why do you want $2.25?
Salesman: I have to pay MGM an 18% royalty on these.
Entrepreneur (grabs a calculator): $1.62 +18% (+10% for safety) that’s $2.10. How many have you got?
Salesman: I’ve got 20,000 now and another 15,000 on the water.
Entrepreneur: I’ll take the lot over 3 months and pay you slowly. I don’t want them showing up at my competitors. They’ll kill the market.
Salesman: Ok, deal.

I spoke to the Entrepreneur after. He was happy to get the product at a price he can move the stock. You make your profit when you buy and just collect it when you sell. But you don’t have to screw your supplier. The Salesman knows he’s got a reliable sale. Win-win all round. But the whole deal was concluded in 10 minutes.

Small unit finance

It seems that GE – Mortgage Insurance Services has decided that small units (<50sqm) are not good. This is a relatively new wrinkle as I have seen the lender summaries that brokers use to assess lenders. GEMIS used to do these loans.

Anyhow if it was easy everyone would do it and I wouldn’t have the opportunity to earn excess returns.

Tonight I heard that there is still a financier or two left who can lend 80% Loan-Value-Ratio (LVR). It may cost me a rate premium, but that’s still ok. More as it comes to hand.

Three Small Units

Ok so I’m late on the details. If you were hanging out so much you could have left a comment on the original entry. But it’s ok the logs tell me a lot of you are coming back regularly.

The advertising was for a deceased estate auction $160K+ buyers for three 1 bedroom units. I know the building in Potts Point as I owned three units there until 1991.

I bought a unit in the building again in 1999 and sold it as a wrap. So I’m quite comfortable with the building. It has some problems: a dodgy hot water boiler and roof leaks. The strata levies have gone up 400% in 3 years not counting special levies. There is also a current bunfight between owners with proxy battles at every meeting.

Oh and the units are 33sqm each. That puts them in the difficult to finance category.

I hate going to auctions. There is no point in preparing for them because most times I am outbid. I went along just in case and to see what they sold for.

I wouldn’t mind buying the building piecemeal over the next 10 years or so.

The current rent is $170, $180 and vacant. The two existing tenants are willing to sign new leases at $200 as is.

The vacant unit is one I owned until 10 years ago! It was sold by the mortgagee in possession in 1991 for $81K (a song at the time). I bought it in 1987/88 for $47K.

I made an asking price offer of $179K last year on another unit in the building but the vendor decided not to sell. So I figured anything up to $179K was good buying.

Anyway I picked the first and third up for $167,500 and the second cost me $165,000. Now I’m busily organising finance and legal structures for the ownership. The gross yield comes in at 6.20% making them negative cashflow to start with.

More as it progresses