Father Sez

During my younger and much more financially and life ignorant days, my wife and I purchased a Timeshare.  

Then, the logic sounded good. For this one time payment + another yearly payment, my family had a choice of 7 or 8 properties in Malaysia where we could go for family holidays. As a large family we usually had to take 3 or even 4 hotel rooms. The Timeshare offered facilities like kitchen, a hall and 2 – 3 rooms. Perfect…it seemed.  

Alas! That was then! 

Now I think about the opportunity cost of the capital invested. This plus the yearly maintenance fee could pay for much more than what I was getting. 

Now I think about the resorts being booked solid during the times when my family would want to use it the most, i.e. school holidays, festive seasons and during other National holiday seasons.  

Now I think about how silly I was to have bought the Timeshare in the first place. 

Now I think about it being no wonder why there are so many ads for selling Timeshares at discounted and often deeply discounted prices. 

My wife has started renting out the Timeshare to her friends and other family members who may want to use it. The money received is used to defray the yearly maintenance charges.  Though the whole process is also quite cumbersome, at least part of the yearly outflow is being taken care off. 

We have often thought of selling off the Timeshare. Our local classifieds often have advertisements of these for sale. There are also some international web sites that claim to sell or rent Timeshares.

This situation of having to pay the yearly outflow whether we use the facilities or not is clearly an unnecessary financial pain. Something that is not in line with my present thinking of eliminating outflows that do not add any value. Something that should be taken care off immediately. 

I am going to advertise our Timeshare for sale. After all my investment is already sunk, if I can stop the continual bleeding, it should be enough. 

I have no back up plan.  However there seems to be an option to be able to donate the Timeshare.

My wife and I may donate this and hope that the recipients make more productive use of this Timeshare. 

PS:  

If any of my readers out there have any interest in a discounted and deeply at that,   Timeshare, please get in touch with me.   

Most townfolks don’t list agriculture very highly in their list of “investment must haves”.  

We have one such an investment, though it did not happen quite the way we had originally planned. This is our tale.  

My wife and I have been interested in starting a goat and cow farm for a long time.  In line with this goal, we had been looking for relatively cheap agricultural land. And along came this opportunity to buy a 11 acre piece for, let’s just say, RM 1,000.  

(RM is the acronym for Ringgit Malaysia, the official currency of my country, Malaysia. Approximate value now is about RM3.50 to the USD. I am using 1,000 to represent the cost so that other related expenses can be expressed as a % easily. I am also a little shy about disclosing actual figures about my finances). 

We went to see the land (about an hour easy drive away), and it was fully covered with thick secondary undergrowth. The advantage was that it was roadside land. Though it appeared hilly, we decided to go ahead and buy anyway.  

Well, it turned out hilly alright. No way could the land be used as an animal farm.  So we decided to plant it with rubber.

See here and here for some background facts on rubber trees. 

The trees take about 5 – 6 years to mature and should start yielding rubber latex from the 5^th year onwards. We got a contractor to clear the land, cut terraces and plant the seedlings. We appointed another contractor, to take care of upkeep and maintenance.  

The final costs from purchase of land to planting came to RM 1,285. Additional costs for maintenance and upkeep for the 5 years, till the trees start yielding would be RM240, bringing the total cost to RM1,525. 

We have estimated our earnings to be approximately RM105 – 220 per annum, net of all expenses, starting from year 6 onwards. (We have assumed that, when the time comes, we’ll appoint a contractor to tap the rubber. The present norm is to share the yield 50:50. The amounts represent our 50%). 

Is this a good investment? Let’s see.

Rate of Return Using the rule of 72.

This investment gives us a compounded annual return of 3.60% - 5.76%, depending on market prices for rubber. (I am taking current prices as the maximum).  

The inflation factor should be taken care off in the appreciation of the land.  

Liquidity – Nope. Land is usually considered as non liquid.  

Do I have any regrets? I have to answer an emphatic no. I would not normally participate in illiquid investments with this rate of returns. 

However, our entry cost was relatively low, and it has been an enjoyable experience overall. I love the countryside, anyway. 

There have been some good lessons learnt. 

i) The principal lesson would have been to make sure the land “was what we had in mind”.  (I need to learn this. Now you know the reason for my dismal investment skills.)

ii) During the course of this exercise of clearing and planting, etc., we found out, (too late for us,though) that there were people who would have done all the work for free, provided we allowed them to grow cash crops such as bananas for a period of 2 -3 years. As this does not bother the rubber trees at all, it is a great win-win situation.  

Now that we have the land planted, we do not intend to just wait. We are looking into inter planting with cash crops. Perhaps we can increase the rate of returns, after all.  

As many other aspiring billionaires, I have read and been fascinated by the many books that espouse theories on making money on properties. 

However my wife and I have never really tried “property investing”.  

A good family friend, Kalai, has tried and made money. He has been a “fixer upper” and made decent money on 2 properties. He has bought and sold properties. He has been a property agent and sold a number of properties. He has also a dud on his hands now. His stories have always fascinated me.  

I accept that property is a major asset class and learning about investing in them can only be a plus in our journey to financial freedom. 

So when a local financial and property “guru”, Milan Doshi, announced his upcoming class, I was interested got up my daughter and nephew to sign up. 

The course promises a number of things, related to improving our financial IQ and learning about RE investment. 

Of course, neither my wife nor I expect our daughter (the second, the first is studying in Wales) to return from the course with Donald Trump’s skills.

What then do we expect? 

a)    My nephew and daughter will get to understand at least some of the nitty gritty and be given an introduction to the world of RE investing and the related matters, like tenant issues, types of property, pitfalls to look out for, financing, calculating returns etc. 

b)    My nephew and daughter will get to meet other course participants who should have the same interests and maybe, form a peer group with some of them. (See this great article on the advantages of peer groups). 

Besides, my daughters forming a peer group is one of my goals for 2008.  

c)     My daughter is close to my nephew and there is no reason why they should not form a 2 member peer group to start off with. 

d)    My nephew is a very sensible young man and I am sure his presence at the course and as my daughter’s peer group member will be of great help to her. 

e)    My daughter is not out of University yet, but my nephew has been working for a few years now. He works with our country’s Central Bank, and thus has his fair share of friends in the banking industry. This should be a plus for them.

f)      I have read Milan’s books and I think he gives a fair representation of the industry. It is not “just buy property and become rich”. It is also about gain knowledge, study your property carefully and buy. And that making mistakes in RE investment can be a long painful affair to unravel.

I believe that my nephew and daughter will get a balanced view of the positives and negatives of RE investing. 

Ultimately, we hope that my nephew and daughter will learn from this course and be more enlightened about the specifics of RE investment.

We hope that they will look up and study a lot more on RE. And we hope they’ll consider RE investment as one of their vehicles in their journey for financial independence. 

Kalai has also talked to my daughter about his experiences, relating both his good and bad ones. He dwelled upon the need to carefully study the property and suggested that she should start with something “small and manageable.” 

I am bristling with so called ideas on what my nephew and daughter should do. I have to and must restrain myself. This is their journey.  

Maybe I should just ask for their idea of a 5 year plan on their RE investments.