TLDR – should you read this book? No, but I loved it. If you want to get into commercial or industrial investing it’s worth picking up.
If you’re a residential property investor, looking for hacks or tricks from near billionaire Sir Bob Jones, this book is not the magic pill to help you on that journey. This book is a rant, a brag, a history, a political opinion piece and it’s littered with gems of property purchases and anecdotes of successful and unsuccessful property dealings.
Bob Jones opens with an argument for property over stocks because of the use of leverage and the claimed lousy returns compared with the power property has to grow your wealth with relatively small capital investment (a small amount of cash and creative/imaginative dealings goes a long way). He highlights the mistake of measuring averages in the stock market with averages in property, which is irrelevant if you control your fate and as mentioned already, create opportunities for yourself.
“…property wins hands down as far as capital security, capital growth, and maximum income are concerned”
A key negative aspect, he highlights, of property investment is the responsibility (upkeep, legal, management etc). But, this is readily accepted, given the significant advantages he outlines. HIs opening chapter titled ‘The Best Hedge Against Everything’ says it all.
Sir Bob uses a framework for valuing commercial/industrial property along the lines of 10x income. So a $10,000 income property is worth $100,000 and where this trait is most advantageous is when the property you seek to buy is under-rented. If you buy the property for $100,000 and increase rents to $12,000 after spending $5,000 for improvements, the building is now worth $120,000. If you put 20% down ($20,000) plus the renovations expense ($5,000), then you almost doubled your money ($25,000 capital down and $20,000 increase in value). As long as rent covers the mortgage expenses, your cash flow is strengthened and you surely will repeat the process as you can.
“… one of the easiest, quick profit opportunities that exists in the property game stems from an awareness of the importance of market rental levels to property values”
“The smart investor buys such a property (under rented), preferably on as deferred a settlement basis as possible, an enjoys an enormous capital gain at rent review time”
I should note the inflation level was over 10% per annum during these years, some properties doubling and tripling in their value of a matter of a few years. Sir Bob does stress that getting burnt is easy if you’re foolish in your property buying and that the three most important rules in property are location, location, location.
Bob claims not to bother bartering with Property, he accepts the price listed as the price and expects the same if selling. He calls it undignified and primitive.
On property development, Jones outlines his principle on profit when developing large properties is to ensure a huge profit. Budgeting for small (10-20%) returns is a fool’s game that leaves one open to stuff ups that leave developers out of pocket and in many cases unable to finish projects.
The best investment example from the book is possibly where Bob bought a block of shops for sale at $225,000. Over the years the tenants had been able to keep rents low, well below market rates, and the landlord was not strong enough (willpower or brainpower) to increase the rents. Bob agreed to buy the block with $5,000 down and settlement in 18 months. Before taking ownership he sent out letters that rents would increase to market levels. After some attempted blackballing by the tenants they all agreed.
New rents increased from the third or so of market value to $76,000 per annum and key money of $125,000 was paid for new leases.
“So the property was now not only worth $750,000 (10x rent) but was costing a mere $100,000 net. To pay for it, I raised a mortgage of $450,000 at 9% interest which left me with $350,000 tax free cash in my pocket and ownership of a building which, after payment of the mortgage interest, left almost $35,000 clear per annum – a middling fair deal”
“The only loser was the original owner”
Bob really rates (or at least he did 40yrs ago) industrial investing and claims some of the easiest money he made was buying existing buildings and fixing them up for tenancy. He has a fantastic story of a building that seemed like a total demolition prospect that was cleaned up to be presented, albeit surprisingly, as a beautiful building sold for big profit. The place was covered in soot and written off by the previous owner.
As Bob became more successful in property investing and built up his portfolio, he started to wind back his appetite for risk and reward and took it upon himself to rein in his speed of investment in deals that burned into cash flow too much. It’s a natural thing to want to accelerate your wealth building fast, but the personality trait of taking risks needs to be tempered with that of patience.
Sir Bob’s view on professional services help from lawyers, accountants, agents and the like is quite insightful depending on what side of the fence you sit. He suggests that you should never take advice, in property investment that is, from your accountant (for a variety of reasons). Just let them do the books. (My note is that only a few accountants in my experience are truly insightful, with opinions worth hearing and considering, when it comes to property investment).
On lawyers “In short, treat your lawyer as you would if you were a sheep-farmer and the lawyer was the best of your sheepdogs. A friendly but firm hand, an occasional kick in the sides but never give an inch or they’ll have you for breakfast”.
The suggestion is made throughout the book that travelling to many different countries will undoubtedly broaden your mind to new ideas with property investment and you might bring those ideas to New Zealand. At the time of writing, Bob had visited 70+ countries, often taking with him more ideas on what to do and what not to do to have more success.
The book wraps up with more politics and newsworthy rambling from the 70s, which is interesting, but not really applicable to us anymore.
I love reading Bob Jones books because he does not skip stuff that might offend some people. He has 20+ books, my favourite is Full Circle which you might struggle to find.
My Property World is the follow on some 28yrs later, more to come on that.