Today we talk about starting early, investing through noise, and never leaving money on the table.

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Personal Finance

What is it that we all have in common?

Not just the friends, family, and heavy hitters reading this journal.

“We’re all Lions!” Indeed, we are.

But seriously, what is it that you, me and Taylor Swift have in common?

Time.

We are all different in so many ways except in the matter of time.

There are only 24 hours to each day, you cannot manufacture more of it. You can’t get back yesterday, you only have right now, today, and maybe, tomorrow.

The one life truth that is undeniable.

The question is, what are you going to do with your time?

When it comes “personal finance”, time factors in because of compound interest, it factors into opportunity cost, it factors into the choices you made yesterday and the choice you will make today.

The more time you have, the richer you can become, potentially.

Take the example of Elrod and Toots.

Elrod starts investing $50/month at age 18. Got his summer job at the docks and he’s fired up Wealthsimple.

Then you have Toots who starts investing $50/month at age 28, same amount, just ten years later.

Fast forward to when Elrod and Toots are 65 years old, staring down the barrel of retirement.

• Elrod now has: $646,000

• Toots now has: $235,000

The same monthly contribution, one just started 10 years earlier.

• Elrod invested $28,200

• Toots invested $22,200

Elrod only out-invested Toots by a difference of $6,000.

But he out-timed Toots by 10 years, winding up with $411,000 more.

Would you rather be Elrod or Toots?

→ start as early as you can.

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Stock Markets

US Federal Reserve and Bank of Canada cut rates by 0.25% on Wednesday.

Stocks fell on the news!

Then they went up to all time highs yesterday.

Good reminder that short term predictions are useless.

Markets are their own organism that even professionals have no edge forecasting—so why would we?

And to borrow an analogy from the land of quantum physics, the very act of observing a particle can change its very nature.

It’s eerie, but that’s basically what the stock market is. When everyone is watching, things usually turn out differently than expected.

So what do I make of the rate cuts?

A whole lot of I don’t care.

Earn more, spend less, invest the difference consistently every month in low cost index funds, and you will do just great.

Real Estate

Investing in commercial real estate is harder than it looks.

And if you’re not careful, the Lions will figure out who the Gazelle’s are pretty quickly.

Take, for example, negotiating a 2 year renewal for a 6,000ft tenant at one of our properties.

The existing tenant has outside broker representation, not unusual, but as a Landlord, we prefer to deal with tenants directly.

Why? Every person or business you include in a transaction adds another layer of mouths to feed. In other words, higher fees and commissions that must be paid. This is actually true in all businesses (and why Warren Buffet despises investment bankers and Wallstreet middlemen that add layers of fees into transactions and ultimately lowers, and sometimes completely ruins, the end investors return on equity).

Back to the example…the Broker representing our tenant at the end of our call said, “oh please include the fee for me.”

I said, “oh, what is your fee?”

He goes, “6% of base rent.”

I say, “my board notes 3% is market for renewal, not 6%?” (I ended with the question mark on purpose—back to his court.)

He says, “for a two year deal usually 1 month rent or 6%, most institutional landlords will pay 6% on a renewal.”

I go, “appreciate that, but that’s the difference between institutional and private.”

He says, “I guess 3% then.”

On this deal, a 6% fee would be about $8,000. A 3% fee is $4,000.

When you are talking about $30,000,000 properties and cash flow of $2,000,000, a savings of $4,000 might sound like a rounding error.

But rounding errors add up, and they add up fast. And it’s our job as General Partners to make sure we earn the Partnership the most money as possible; higher rents and lower expenses, which ultimately let’s both the General Partners and the Limited Partners (our lifeblood), earn the best return.

It must be said that we love cutting cheques, especially broker cheques—because that usually means a nice deal has been made for the benefit of the partnership. But there are so many cracks for others to angle through and if you’re not careful, they’ll slip right through.

We must be diligent, understand our negotiating position and stand firm to ensure the best result for our investors.

Most recently, we sold two grocery anchored retail plaza’s in Western Canada in the $20-$25 million range. Both of them held for ~5 years and a huge amount of work went into acquiring them, managing them prudently, adding value, and selling them.

Both resulted in a doubling of investor capital, in the 18-20% annualized return range.

To be sure, we, the General Partner, earned fees along the way and a performance fee for outperforming our hurdle.

But delivering a return of 2x is no easy feat. Furthermore, that potential return is very much a product that our investors are happy to pay for.

In sum, fees are normal course of business. Just be sure you are comfortable with the fee arrangement up front, know what “market fees” are so you know when someone is trying to overcharge you, understand your position of strength, and negotiate where possible and in a fair-enough manner that keeps your business running, ultimately to the benefit of you and your partners. You’ll do just fine.

1 Quote

“Darkness cannot drive out darkness: only light can do that. Hate cannot drive out hate: only love can do that.”

-Martin Luther King

A Question

Who here thinks money is more important than time?

And who thinks time is more important?

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