Property lottery: From $285,000 to $7 million

Cherie Howie shouted in today’s NZHerald that the sale of a Whenuapai (West Auckland) land sale was better than Lotto. Let’s analyse this claim and see whether we agree or not.

From the article we understand that an investment of $285,000 in 1995 increased in value to $7,000,000 in this month’s sale. Furthermore, the vendor said that the investment increased about 2500 per cent, about 30 per cent a year.

We don’t know if any improvements were made during the 20 years so we got to ignore it. Also an agent said that the property probably would not have achieved a sale of $2,000,000 only 3 years ago.

A key driver for the capital gain appears to be the development of the Westgate town centre and the extension of the North-western motorway.

In a financial analysis it is a key element to compare, so to say, apple with apple. We can do this by using a Return on Investment (ROI) calculation given the above variables and assumptions. To compare a property investment with financial investments is it sensible to assume monthly or annual payments of dividends or interest payments.

Hence, the ROI for this property is calculated as:

Number of payments = 20 for annual or 240 for monthly

Annual Interest (return) = to be computed

Present value (20 years ago) = -$285,000 It is negative as we had a cash outflow

Payment = set to zero as property does not receive such payments. For financial investments the price is a reflection of these payments over the time period.

Future Value = $7,000,000 as this is the price received in the future from the purchase in 1995.

Using a financial calculator or Excel we find ROI of 17.36% for annual or 16.11% for monthly

Do these Returns On Investment still look like a Lotto ticket? Let’s compare it to an investment in financial instruments like shares in a public traded company or fund index (a bundle of shares).

Here is a list of Vanguard index funds from one of the largest fund providers in the world. The fund is in a USA fund and data was available from 2000 to 2014. The first percentage in green is a comparison to the Standard & Poor’s 500 index. The second percentage is the ROI of the index fund. (source http://www.marketwatch.com/story/the-sp-500-index-is-not-your-buddy-2015-01-14)

Here are the 15-year returns for the other six funds:

 

At this stage, the property outperformed all of the Vanguard index funds and the S&P 500. How about an individual stock? What if we invested like Warren Buffett? Here a number of his best investment picks.

  • Berkshire Hathaway (Buffett’s investment company) returned 22% annualized since it’s intercept 50 years ago.
  • Wells Fargo 21% annualized over the last 24 years
  • Freddie Mac 24% annualized over the last 13 years

Warren Buffett most people would agree is a fairly conservative investor and the above 22% return on Berkshire Hathaway would be on a well-diversified portfolio. (http://fortune.com/2014/10/31/warren-buffett-best-investments/)

How about the 10 most profitable companies in the world over the last 20 years? (http://www.finance.yahoo.com/news/20-most-profitable-companies-world-175534730.html)

  • The 10th best performing company was Microsoft Corporation 12.17% annualized
  • 5th best performing company ExxonMobile 7.09%
  • 2nd best performing company Apple Inc 25.06%

Now, after that we have simplified and standardized the different investments we can compare them.

First, comparing Return On Investments, Apple Inc had the best return with 25.06%, followed by Freddie Mac 24% and Berkshire Hathaway 22%. Warren Buffett’s picks. The Whenuapai properties return at 17.36% is lower than the share investments. However, it did perform better than the Vanguard index funds and the S&P500.

Do these differences look significant to you? Not sure? OK let’s convert them back to an attention grabbing dollar amounts.

The Apple Lottery ticket would have grown to $25 million

The Berkshire Hathaway Lottery ticket from Warren Buffett would have grown to $15 million

The Vanguard VISVX Lottery ticket would have grown to $2 million.

With the benefit of hindsight, which Lotto ticket would you have liked?

PS Risk … yes there is risk in all investments. That’s for another post.

3 reason PhD candidates should become bloggers.


First, a CV style page is useful for others to find you and learn about your (common) interests (vis versa too) For examples, I have connected with a researcher in Canada, who did is helping me to learn Text analysis from Twitter.
Second, a blog is a great way to teach others what you’ve know (http://oxbridge-tutor.co.uk). Some say that teaching others it the highest form of learning. Also, it can be used of demonstrating your teaching ability if you are not teaching as yet.
Third, some academic bloggers also created businesses from their knowledge and experience. The best person I’ve been following for some time is Cal Newport. Cal is an Assistant Professor at Georgetown University (Computer Science). He wrote, published and run workshops starting as an undergraduate to today. Here are the links to his online work.http://people.cs.georgetown.edu/~cnewport/
http://calnewport.com/ 
http://www.top-performer-course.com/
http://tinyurl.com/q75w2po

I’d be interested to hear how others think about creating a path outside the traditional world of academia that way.

Redesigning The Office

I think most things around us can be designed to be better for people. Here’s my take on the modern office — a better place to do good work.

It has all the usual office things like Wi-Fi, AC power, and a desk for working. It also has a couch for thinking, and a view and fresh air. And it’s always near the ocean or a place for exploring.

This has been my main office for the last year or so, and it’s my favorite place for intense, focused work. But what about working together with your colleagues? That’s easy — just drive over… I love it.

 

http://davidmckinney.com/blog/2013/12/29/redesigning-the-office

What are your top 5 tips for investing?

1. In the best of all possible worlds what would you really want to happen? Think about what YOU want and how YOU want to design your journey in this lifetime. I’ve met thousands of people in the last seven years and most are still in the same space because they don’t know what they really want out of life.

2. Be very clear and focused on whether you want to be an investor or a saver. I have an interesting article on this topic and it is often misunderstood. Investing is the process of building financial wealth. Saving is setting money aside now (i.e., foregoing current consumption) to spend it later. An example of saving would be buying real estate to fund retirement. Investors never really “spend” their financial capital, but continue to manage it going forward. The building process continues even as we begin to use our financial capital. 

3. Kiwis are excellent DIYers. Trust me: this is the hard way to do anything. Whether you want to become New Zealand’s Donald Trump or save for a spectacular early retirement with real estate, build a TEAM of trusted advisors who can guide you in achieving your dreams.

4. Should you choose to become an investor you need to know more and constantly educate yourself in a wide range of subjects. As a saver or new investor you need professional advisors to give you advice. A professional investor on the other hand needs a professional advisor to help execute plans.

5. Good planning is important, but effective implementation is crucial! Don’t get stuck with chasing the perfect plan or the latest fad of an investment technique. To plan for your financial future, a boring old-fashioned rental property in a good location bought today will always beat the perfect deal purchased with the newest technique one day in the future.

More here: http://www.propertytalk.com/forum/showthread.php?9570-PT-Investor-Secrets-Daniel-Feller-Feb-2007

GTD in 15 minutes – A Pragmatic Guide to Getting Things Done

What is “GTD”?

GTD—or “Getting things done”—is a framework for organizing and tracking your tasks and projects. à Full instructions here: https://hamberg.no/gtd/

The process is well summarized in the picture below.


The GTD work flow: open loops are collected in the in list, processed, and if it’s an action it’s done, deferred, or delegated. If the item being processed require more than one action, it’s recorded in the projects list as well.

Source: https://hamberg.no/gtd/

The reality of renting in Auckland

Every day a papers print a story on New Zealand or in particular Auckland housing issues they are written and edited by the papers staff. They choose who they talk to and into what “sensation” it is going to be turned into.

Headlines that “modern” generation has been locked out of the housing and rental market are as old as newspapers. Is should take no time to find such claims in the 60’, 70’s, 80’, 90’ and even in the new millennium. Nevertheless, people now older, when they were in your age bracket found ways to buy their first property.

Not that there is something wrong with Sandringham. But if you’re after a very nice place and can afford $450 for a bedroom, please find 3 or 4 mates and I find you such beautiful home and sublet it to you. Handsome weekly cash flow to someone with imagination and creativity I can smell.

Going to viewings is even worth then networking for some. But surely someone in your profession does have a large network with plentiful of friendly property managers or people in the real estate industry. To start with, how’s your relationship with your current landlord?

Lots of good things in life ranging from great hidden holiday spots  to career or business opportunities, first homes or rental properties are seldom advertises. Good things are passed on within networks of friends and acquaintance. I doubt that gen X or gen Y have figured that out too! Indeed this behaviour  can be observed every day at universities, workplaces or sports by watching people going places.

The answer? If you’re a gen X or gen Y and are winging, stop winging. Accept that, as previous generations before you, you will not be given life on a silver platter. If you truly want something go after it and figure out a way. That may include sacrifices such as self-education in financial literacy so that you can make better and informed financial decisions or finding ways to make more money. There is a limit how much one can save or budged . It’s much easier to increase ones income streams.

New York is hardly comparable with Auckland in what the two great cities have to offer. However, rents in New York are significant more expensive than in Auckland. With a range of NZ$2,514 to NZ$ 8,273 per month or +114 to +216% for a 1 to 3 bedroom apartment in or outside the New York city centre (http://tinyurl.com/jwdd2fg).

Finally, glad to see you don’t blame the Government for this predicament. Although the Government does play its part in it. However, as happiness comes from within so does what choices we make to have the housing and lifestyle one desires.

PS in responds to http://tinyurl.com/kxd94ze