“…the mental satisfaction of having $1000.00 (in 1939) laid away where you can put your hands on it, is worth more than what interest it might bring, especially if you have the investment in something that you could not realize on quickly.”
Warren Buffett’s grandfather Ernest Buffett writes a letter in 1939 on the importance of what Scott Pape calls Mojo Money, some money tucked away for just in case.
I can’t stress how important this is, or how much it changes your attitude to life. I have quit jobs I wouldn’t have without my mojo money. It allows you to think rationally in non-rational situations.
The unit that we rent was recently sold, albeit slowly and after many frustrating rental viewings. We’re under a fixed term lease until the end of October, so, although we have a new landlord, our lease remains intact.
This week we received a note from the our new landlord; who I will refer to as The Man. He suprised us by saying that come lease renewal time (end of October – about five months away) he is going to increase the rent by $50 per week to, quote, “market value”. The Man is such a hungry hungry landlord.
I have a few issues with The Man’s actions, these being:
He doesn’t know the value of having good tenants. The onsite manager said The Man would prefer to get more rent from 3-4 overseas students who will share the unit, than slightly less rent from us, a dual income couple, both with full time jobs, who have lived in the unit for the last 2.5 years and have always paid the rent on time and kept it immaculate. The students usually stay about 6-12 months whereas we will probably stay a few years.
He doesn’t realise that his plan may backfire. If the apartment is empty for just a few weeks then his weekly rent increase has been entirely lost and he is no better financially off than if he didn’t raise the rent so dramatically in the first place. If he gets a bad tenant it takes a lot of time, and money, to evict the tenant and get another new tenant.
He is doing Australian society no favour by investing in existing real estate. Unlike actually investing in real estate by building new housing, he is instead using negative gearing to speculate on future price increases of existing housing. This simply adds to real estate demand and increases housing prices. Struggling first home buyers are being gazumped by cashed up hungry hungry investors like The Man. It doesn’t help that the government encourages him to do this: he pays no land tax, can claim all his rental expenses and shortchange on tax, and then he receives a generous capital gains tax concession!
It is a sad day in Australia, as we are now at a point where current and future generations will not only find it increasingly difficult to buy a home, but to rent one as well! And it’s not at all being helped by the actions of my hungry hungry landlord, known as The Man.
Update (10 June): Here is a link to an excellent article that explains the difference between investment and speculation.