Being a young person myself, I was particularly drawn to the latest API, also a little shocked by what the guy Tom did – for those who have read.
Tom a 22 year old ‘Young gun’, who was studying a bachelor of property economics, with parents who had been successful property investors also, got an inheritance of ~600k which he ploughed in it’s *entirety* into 3 blocks of land to develop with his brother, who would pay for the buildings.
Now, im new to property investing, and yup, I dont have a degree in property economics, nor do I have parents and mentors who know about property investment. But I cannot understand how he could possibly stick his entire working capital into owning a property outright. Why not use the 600k as deposits for properties that would easily go as high as 2.5million if he was to throw down 25% deposits.
It makes it even more dicey that his finances are bound to that of his brothers which is passed off as a good thing in the article. Many people learn the hard way not to mix business and family/friends.
I just cant understand with his education and family background why he would have done that. Could someone enlighten me?
Yep simple….SANF (sleep at night factor).
I own ALL my properties outright, are you implying I am equally as stupid??? [blink] With my net worth I could borrow well into the millions, but I choose not to. It is simply a matter of choice.
I will no doubt borrow in the near future (perhaps in the next 5 years) but for now it suits me, and I make enough passive income to not have to incur a debt. I have money invested in other markets and the returns are favourable, hence why bust a boiler???
There is no right or wrong way to invest, it is a matter of individual choice and comfort levels.
Cheers,
Jo
Nah, it’s like a couple of peoples signatures. ‘Go hard, or go home!’ [biggrin]
I get your point. I did not consider it from a security point of view. Though, being 22 and having parents who are likely to be rich anyway, I would have thought he’s be up for a little more risk.
That being said, I would gladly accept 600k capital if anyone was interested in knowing what someone who is a little less risk averse would do with the money. PM me! … not all at once though thanks. [happy3]
Unannounced,
My son is 22 however it is for that very reason that I would not hand over 600K because his inexperience would make him equally as risk averse, and I know he would risk too much too quickly, thus jeopardising all that I spent years building up!!!
Perhaps Tom’s parents wanted to see what he would do with the 600K and had he done what you are suggesting, they may not have been so inclined to trust him with anymore (for the time being anyway).
I think he did the right thing, but that is just my opinion. Each to his/her own…whatever works for you, as long as you take full responsibility for any credit or debit situation you create for yourself.
Cheers,
Jo
Yeah, I wish I could go out and buy a negatively geared apartment and get showcased as a young gun or spend all my inheritence on land and run out of money before I could put anything on them.
Typical of the API magazine, each month it just keeps getting <edited>ter and <edited>ter.
I would have thought it to be far more risky that he’s put all of his eggs in the one basket. I sure hope he follows Buffet’s thinking when coming to investment. ‘Put all your eggs in one basket, and WATCH THAT BASKET’. Though in this case, it would be more doing an insane amount of due diligence before hand. That probably one thing I would give him credit for – if that’s what he’s doing.
What makes property soo appealing to me, is the easy in which you can get and use other peoples money for either a short term or long term gain. It’s also a nice place to hold money you have earned. Yes there in risk going there, but there is risk inherent with any activity. Managing your risk gives an optimal return on money. Steve is an example of someone who is willing to push the boundary here.
But yes, I dont own, nor do I have the experience in property that you do. So obviously, your word is going to carry a little more weight than my own.
Unannounced,
I not only hope, but expect that because of your age, that as you have so many more years ahead of you than an old duck like me, you will not only get to the level I am at, but far exceed my efforts!!!
All in all, you seem to have a true appreciation for property investing, and that in itself, is a huge step forward.
Go for it!!![thumbsupanim]
Cheers,
Jo
I think the key take away from the article is the fact that at ages 19, 22 & 24, Monika, Tom & Ruby have had the foresight & ability to commence investing & planning for the future, inspite of all the distractions to your time & money at that age…
Gees, when I was 24, I think I was prinicpally focused on girls like Monika, but for other reasons![exhappy]
Unannounced,
I agree with Jo’s comments (but unlike Jo, I’m still trying to claw my way above the poverty line).[tired]
It makes it even more dicey that his finances are bound to that of his brothers which is passed off as a good thing in the article. Many people learn the hard way not to mix business and family/friends.I have recently done a business deal with long time friends (a couple). We discussed the deal in principle for many months beforehand. We also discussed the specifics in great detail. And we took time to write down agreements regarding how property costs & maintenance etc would be paid, how rental income would be distributed etc, and we also talked about how we would need to re-word our wills in order to provide security for the other party. It has been an excellent decision for all of us (so far!) in that it has allowed us to add a $750K+ property to our portfolio that neither of us could have afforded alone.
The major reasons that both parties were comfortable with the deal were: we had known each other for a long time and trusted each other, we had legal measures in place to protect the asset and ourselves & families, we have similar investment philosophies and tolerances for risk, we are all equally disciplined about making repayments etc.
But I take your point….I would never have done this same deal with any of my family members!!![stunned]
I want to be like Jo.
Hey announced, I am a little bewildered from your statement.
I mean why would it surprise you that someone would put all they have in a deal and risk it all. I can name many that have done just that. some have paid off others haven’t.
I also do deals with family and friends all via a solicitor and all contracted so no arguments.
I would rather help someone I know make a dollar than pay a bank or finance institution.
Saying that, I am geared as far as I am able to be geared due to the fact I speculate and do take risks.
Byronent
Adelaide SAbyronent,
I am suprised that with his education, youth and family history that he did not use the capital he had to gain more funds to appropriate a greater portfolio. *Especially* because of his education. Because he didn’t take on that additional ‘risk’.
Though I applaud the decision to put all of his eggs in one basket. Those who have read on Buffet (even Steve touches on it) know that diversification does reduce risk, but it also reduces returns. Risk is mitigated through focus as you (should) understand the investment vehicle much better than if you were to try and understand many. Making you more capable of identifying and investing in an excellent transaction.
woodsman,
Yes, I agree. Though, it would be nice to see that investment was seen as being ‘The Way’, rather than something that only a very small percentage of young people do.
On the friends/family point. Yes you can write contracts and involve solicitors. But, the problem is that if it ever goes to that point, sure there is a clear understanding of who gets what, but there is going to be a winner, and a loser. And that does not do much for a relationship. Im not anti-helping friends and family, I just would prefer not to risk it.
I am personally a big fan of helping people help themselves. You can help more people, and the accomplishment is all the greater for that person.
You can write mutually beneficial agreements without invovling solicitors….thank GOD!!!
(I deal with solicitors all the time in my day job, so i’ve earned the right to have a dig at them now & then).[biggrin]
I have entered many win win agreements.
they don’t have to have winners and losers.
Byronent
Adelaide SAOriginally posted by unannounced:Those who have read on Buffet (even Steve touches on it) know that diversification does reduce risk, but it also reduces returns.
Do you subscribe to all of Buffet’s investment philosophies or do you selectively acknowledge only those that reinforce your own beliefs? Putting your eggs in one basket is a great way to make a lot of money fast, but only if you believe in ‘Timing the market, not time in the market’ (and have the nouse to read the market which often requires contrarian thought processes).
Buying just past the peak of a record bull run and holding for long term gains is incompatible with WBs approach IMHO.Cheers, F.
foundation.
Im speculating on what some other guy has done of which I generally do not think was the best thing he could(should) have done. I conceded that the One thing he may have done right is put all of his eggs in one basket. Which is one investment philosophy that Buffet subscribes to and has made him the second richest person in the world[last I remember]. Whether he has done the work to make sure this is really going to be the best use of his capital, I dont know.
also – I also believe that in the article, it stated that this property was purchased prior to the boom ending.
You have brought in some great change in topic with this thread, makes for relief reading i think.
I would like to say one thing though before I leave this thread and that is, why worry what your neighbour is doing. He probably has a plan, believes it will work, more importantly expecting a profit so the deal gets done.
You ponder on too much details as to why, what if, should have, could have etc. I think it detracts from your own plan. I would be looking at it more like why am I not thinking like he is. What has he seen in this deal that I don’t see and probably make a mental note to follow his success and failure and try and learn from it.
that is my opinion anyway.
Byronent
Adelaide SAI have entered many win win agreements. they don’t have to have winners and losers.Win-win agreements are ideal, I personally dont believe you should ever consciously make a win-lose deal. Though the point I was attempting to make was when something changes and the contract is referred to, most likely in the case of termination. The contract is likely not going to be complex enough to provide an adequate win-win split. One person will likely be put out. Either from lost profits, inconvenience or whatever.
Sure, as friends you should just cop it sweet. But people find it easy to resent those who comprimise ones self interest, even if it’s of their own doing. Alot of people dislike other people for one reason or another. We dont have a group of people who are universally disliked by everyone. Everyone has friends. People just find reasons not to like someone else. And this is one reason that many many people have problems over. I’d prefer to give unconditionally, no assumptions or find a way I can help them help themselves. But that’s just going way overboard explaining.
byronent,
I needed to understand if there was an angle or something that his plan was doing that I didnt consider. I did not make sense to me that his plan was featured when he could have done something better. [provided security is less of a worry for the investor]
I like to question, I like to understand things that I do not.
also…
‘Chance favors the prepared mind.’
— Louis PasteurOriginally posted by unannounced:
I needed to understand if there was an angle or something that his plan was doing that I didnt consider. I did not make sense to me that his plan was featured when he could have done something better. [provided security is less of a worry for the investor]I like to question, I like to understand things that I do not.
Unannounced,
There is nothing wrong with questioning, it is how we learn. But on this one, the only person who can truly answer your question, to your complete satisfaction, is the man himself (Tom).
At the end of the day, regardless of what anyone does, how they choose to invest, the strategies they employ, the decisions they make, there will always be a better way according to Mr/Mrs/Ms X. Simply put; it’s just a matter of individual choice, and really as long as the end result has been a positive one, does it really matter how they got there???
See/read/listen to the story, try and make sense of it, if it does not fit your criteria of doing things, by all means, question it in order to try and come to some understanding (appreciation) for what has transpired, and in the end, make up your own mind (as you seemed to have done anyway).
Cheers,
Jo
There are some good and bad points here on a great thread.
Lets look at the strategy of paying cash for the site from a developers point of view. With out writing another book on this subject it simply makes sence.
Investors get returns and developers get rich. You should always try to pay cash for the site to reduce exposure and over borrowings.
I don’t think these guys are dumb because this article says that their parents are strong investors as well. Because of this I fail to see how some of you, other than a lack of experience,assume that they could loose every thing.
Now is the time to start developing again, money is in land, just ask Harry from Meriton. The hottest area I believe is Queensland for developing, based on the research my property analayst department is producing.
As to doing deals with family and friends, I have noticed that wealthy people stick close to each other. There are more arguements between unsophisticated relationships, because of greed and mistrust, than the other way.
Phil
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