Weekly Thoughts 14 March 2014

A couple of years ago I bought (well the bank still owns 75% of it) one of the smallest residential units in a local retirement village in Howick, with the main thought of us knowing where our daughter could go and safely live if my wife and I were both not around. It’s a village where you do not have to be any specific age to live there – just no children allowed. The unit is conveniently located in that she could walk from it to the indoor pool, the dining room, the library and to an animal re-hab centre if she chose to do some volunteer work there. A place she is already familiar with.

I probably paid a little bit too much for the income stream, meaning that the initial rental yield was maybe a bit low for the capital price of the unit. However, once purchased, the capital value of this unit is now completely and utterly irrelevant, except for the entry on my assets & liabilities statement for my returns to SARS and the FSB. Reason being that for over two years now, I have had a stable tenant with a stable rent being paid with two anniversaries of increased rents at just above the declared CPI rate. So I have a stable and reliable and growing income from the underlying asset. The value of the place has no effect at all on the income anymore. I will probably never sell it. If my daughter was never to live there then someday one or both of us might. Although the proverbial swinging cat would hit its head on both walls during the circumference of its travels in any of the rooms, two people could live in it if they had to.

My tenant is a delightful 90+ year old lady. She uses a walker but her mind is as sharp as anything and her personality is absolutely delightful, probably because she rode horses for 60 years! She says this is why she can’t walk anymore!
But my point is the reliable, sustainable, growing income and the fact that the capital value is now irrelevant and not even thought about. I am going somewhere with this line of thought. I will take it further again next week.