1) Kings’ recent CNBC Squawk Box feature about investing in student accommodation…
Last weekend they sold more than 20 of these things, most of it on the first day itself, and it’s a thought process we’re having re The Rockstars’ college educations someday as well:
We can’t afford to buy anything we really want in terms of a family home at these prices (story of HK life <roll eyes>). So what about a property trade idea related to the kids’ education?
Rockstar is almost 7 now. This student accommodation (in Canterbury, 56 minutes from London) is to be completed in 2 years, and for ease of analogy let’s say we have a 10 year plan upon getting the keys. Rockstar would be close to 19 – college-going age – by then.
Now, let’s say we look at a student apartment of GBP 110k notional. The terms of this trade are: pay 30% upfront, another 20% in 6 months, then remaining 50% in 1.5 yrs upon completion.
Upon completion of this development in 2 years when you need to pay the other 50%, this UK property developer will provide funding (i.e. let you borrow said 50% from them or effectively pay them the other 50% over 5 years, at a lending rate of 5% p.a..)
Add to this, they guarantee a rental yield in those 5 years of 10% p.a. (by definition that means if you can’t rent the apartment out in those 5 years with a yield of 10% p.a., the developer tops this up. If you manage to get more than 10% p.a. rent, you keep the difference.)
For the next 5 years from completion date then, you’re paying roughly a total of 5% p.a. x 5 years = 25% financing or interest + the remaining 50% of the property price spread over 5 years.
For a GBP 110k unit, that works out to a P+I of GBP 68,750.
You repay this total amount over 20 quarters (4 quarters in a year X 5).
=> each quarter/ every 3 months, you’re paying GBP 68,750/ 20 = GBP 3,438 before taking into account rental income guarantee from developer.
Your cash-flow on the unit for the first 5 years (after 2 year completion date) will therefore look like this:
Quarterly repayment to developer: GBP 3,438
Guaranteed rental of 10% p.a.: GBP 2,750
less estimated expenses of 1.5% (property maintenance, etc): GBP 413
Net Rental Guaranteed 8.5%: GBP 2,338
Shortfall per quarter (i.e. net amount you pay every 3 months) = GBP (3438 – 2338) = GBP 1,100
(or per month what you pay, net, is): GBP 366.67 (this goes up if your maintenance expenses go up)
5 years after completion, your entire property is paid up.
But Rockstar reaches college age roughly 10 years after completion, not 5:
Rockstar would be ~14 when the student accommodation is all paid up. By the time he reaches college age of around 19, the dorm property would’ve been fully paid up for the last 5 years.
What happens in those last 5 years?
Worst case: ZERO rental after developer’s 10% p.a. rental yield guarantee for 5 years expires. You’re holding a fully paid up dorm property that costs you estimated GBP 413 a month to maintain.
Even Worse Than Worst Case: Crime goes up, people break your windows, etc etc and so maintenance cost goes up and you’re out even more than GBP 413 quarterly.
Say however you score a rental similar to what the developer was guaranteeing, i.e. net 8.5% p.a. after maintenance expense, or GBP 2,338 quarterly, for the remaining 5 years in that 10 year plan.
When Rockstar’s 19, we’d have a paid-up dorm room and GBP 46,800 positive cash flow/ towards his college fund.
(Obviously this thought process works for anything with similar terms – just insert corresponding maintenance fees, rental income, financing numbers…. Can have a simple spreadsheet to compare projects…. if there were other projects offering this that is…)
Where’s the risk?
The person or entity making the guarantee (and for a property development, your risk is the developer.) This holds true for any investment product that has a guarantee – whether of principal or yield. A guarantee is as good as its guarantor (BUT bear in mind a super blue-blooded developer, AAA rated bonds issuer or whatever may not bother to try and guarantee anything to begin with…)
No investment exists that furnishes a return without a corresponding risk, that is like Newton’s Law Of Investment Products. What you can change is the form that risk takes – you can choose a form of risk more comfortable to you.
(For eg, take a simple Dual Currency Deposit which enhances your yield via you selling a currency option to the bank, the worst thing that can happen is the option you sold is exercised against you, thereby converting your say, HKD to GBP at option strike rate (which only happens if HKDGBP trades to where it is favorable to the bank and not to you for the option to get exercised – which is the risk you take for the extra return). But if your kid is going to college in the UK and you have to convert your HKD at some point to GBP anyway…………. And then said enhanced yield from option premium goes to offsetting the less favorable exchange rate.
In other words, the same product can look quite different based on whether your kid is going to college and you had to buy GBP anyway…………………… or a dorm room…… Or a college. Or a football team………. :D)
So anyway. The thing we liked just from the whole biased parent (:D) perspective was: Going to college? Here’s a place for you to stay. Oh, Mum and Dad might drop by just to check your plumbing is ok. We are nothing if not good landlords! :D
I’m kidding, but it is a partially emotional purchase, in an investment notional much more palatable than the crazy HK property prices, if you want a taste of property investments. So yeah, if your kid doesn’t end up going to college where you own a place (I could accept Harvard ) then you’re back to simply whether there is cash flow that helps with paying tuition.
2) Speaking of Harvard…... A few years ago this course attracted 100 students. Today that’s closer to 800 and only about 10% of those have a background in computer science. Why CS50 (Introductory Computer Science) Is The Most Popular Course At Harvard.
Useful to know what is “basic” in tech nowadays <sweat>
3) And if it wasn’t covered by “basic” tech……. Fake Facebook Pages And Promos May Steal Your Identity. Enter your personal information to be in the running to win an iPhone or Samsung Galaxy, that kind of thing.
At the bottom of the article was a parting “…be cautious about the pages you like on Facebook and the things your friends share….” that struck a little too close to home. One day I’m on this and I see a Forex trading site an old friend has liked. This is particularly damning because said friend just happens to be a Forex structurer, formerly a really bright auditor (YES, people. THEY EXIST). I went on the site, thought it looked ok – but most importantly, this friend whose opinion I respected very much about this stuff had liked the site. Now, I don’t trade forex, but I wanted market news updates, and so I inputted my information.
So I’ve been getting umpteen phone calls asking me to “get started trading”. (Uh… what?) They sound like very nice people and most of the time I don’t pick up my phone <sheepish> and all my good friends know not to leave voice messages so technically, not difficult to ignore.
I went to ask this old friend whom I hadn’t spoken with in awhile about his experience with this site because it was his “like” that had heavily influenced me and he said HE DOESN’T KNOW HOW HE CAME TO “LIKE” THE PAGE. HE HAD NEVER HEARD OF THEM.
Y-eah. So even more not picking up my phone now. Or Facebook-ing much. I’ll go like something if you’re my friend and you ask me to but otherwise………. Oh, remember to check with old friends about pages they apparently think are awesome.
4) And I seem to be on a version of the Kevin Bacon Game here, because Apple And Facebook Pay Employees To Freeze Their Eggs.
From someone who was once so career focussed she really had the thought: That is just so nice of them. (And yes, in another life I really was that person. I could say no to sex before marriage, but I was aware I had a biological clock and I hadn’t wanted to “settle” because of it. Please don’t scream at me, I wasn’t even Christian until about 6 months before meeting Kings. My first prayer as a new Christian btw, had been “Please Lord let me meet the right person, or else please don’t let me meet anyone.)
5) OK PICTURES. And some irony in This Dog Has No Idea What She’s Doing.
Her Instagram claims she doesn’t know what she’s doing. I claim this isn’t a bad idea. Because JD thinks beer is disgusting.
I wasn’t intending to click on this Bored Panda link but I’m glad I’m did. There were quite a few coincidences – firstly, one of my good friends will be getting a dog for her daughter (also 7) in the near term and has been putting a lot of thought into it.
Secondly, Chubby looks quite a bit like Vickey, my first dog. Similar markings and coloring, similar size (Chubby’s well, a bit chubbier but that’s about it). I was 13. Vickey was put down peacefully after multiple organ failure when she was about 13. I was going through my mail on the MTR, headed back to my rented bedroom after staying late as usual at my first banking job, when I opened a small card with a red rose on the front, informing me of the fact as gently as it could. I got off at City Hall and walked over to sit at Boat Quay where I proceeded to cry my eyes out.
And then some creepy guy tried to pick me up and I took his head off. (Seriously. I yelled something like “You idiot. Does it look like this is a good time to pick someone up?!”)
R.I.P. Chubby. And Vickey. And all the countless much-loved animals who amaze us with their capacity to love unconditionally and with total abandon.
For real though, better get a dog you like as well, because when your kid goes off to college that dog’ll be yours. That’s actually not so bad. My former pre-natal instructor had a 20 year old son who kept some carnivorous fish in a tank in his room – the thing ate live goldfish. She did not enjoy caring for that when he went off to college.
7) Rockstars skit is When Lofty Readings Of Science Fail To Inspire, Instead Producing Altitude Sickness, One Must Repair To The Literary Equivalent Of The Chip Shop At Base Camp And Read Mr Men To One’s Sister. While She Partakes Of “Gwapes”.
(Yeah I know my title is longer than my skit Rockstar’s been revisiting his Mr Men (which are now the Miss’). And I don’t photograph them playing in here vm because the Miss is currently seriously accident prone due to a basic lack of respect for heights, hard objects and well, pain and I have gone through three different foam toddler-safe edge guards and nothing sticks to those race car bed edges for long.)
Good weekend dears…