"Wraps, flips, lease options and other Businesses"

Sim

Administrator
From: Sim' Hampel


I haven't seen the newsletter you refer to Sly, but I have been to one of Steve's seminars and read his newsletters and so forth. He does make it clear that wraps are a business not an investment and should be treated as such.

Steve and his business partner do have investments in low cost, high yield property... but that is a buy-and-hold strategy which is separate to their wraps.

I do know that Hans posted on the forum not too long ago with a rather over-zealous bit of spam promoting Steve's products. Steve actually came on to apologise for the unbridled enthusiasm which has caused a few feathers to be ruffled.

If Steve mentions in his material that wraps are an investment, then he has contradicted himself (and should be slapped around a bit with a large trout), but I suspect it is Hans who's enthusiasm has once again been let loose without a leash.

 
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Reply: 1
From: Nigel W


So your distinction is really between passive buy & hold being an investment and all else which is active being a business?

So, is it investment if I buy a property and renovate it to increase the rent? What if I decide the market is skyrocketing and sell to reap my cap gain and plough the money into a place with low growth potential but big cashflow? Is that investing?

Surely buying low and selling high, regardless of the timeframe involved is investing?

To be honest, I think this is just a matter of semantics.

At the end of the day, the whole purpose of all commercial activity, whether it be "investing" or "running a business" is to make $.

And because you can't spend/eat capital growth, at some point you need to convert capital gain into cash if the asset isn't producing satisfactory cashflow to meet your needs.

I don't think it really matters what you call it. I think Buffett has 2 rules:

1. never lose money
2. see rule 1.

I think that sums it up really.

Cheers
N.
 
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Sim

Administrator
"Wraps, flips, l/os and other Businesses (long)"

Reply: 1.1
From: Sim' Hampel


Nigel (and Sly),

You are quite correct in that this is indeed a matter of semantics, and also a subjective one.

My personal opinion (and it is only that) is based on your intention when you purchased the asset, and over what timeframe.

To me, an investment is something you are prepared to hold forever (ie. it would become part of your estate and be handed down to your heirs).

If you purchase something that you intend to sell, then that intention to me indicates a desire to trade. By my definition that is no longer an investment, rather you are considering a business venture of trading in properties. The business makes money by buying low and selling high to realise capital gains.

A business venture has different goals and risks than an investment. A business venture has the goal of making money (cash) over a particular timeframe. An investment has the goal of appreciating in value over a long, perhaps infinite time period (ie. until after you are dead).

I will note that I consider it okay to reassess and choose a different path for your asset based on circumstances. This may mean that an investment becomes a trade by my definition.

And just because you sell, doesn't necessarily mean you are trading - it's called portfolio re-evaluation. Weed out the poorly performing assets and reassign the funds to better performing areas.

I suppose that the key issues from my point of view, is that for an investment (by my definition), timing the market becomes largely irrelevant, as over an "infinite" amount of time, market fluctuations mean very little.

For a business venture, where the goal is to maximise the returns over a finite period of time, timing the market is quite relevant and indeed important.

So what do I do ?

Well at this point in time, I have several properties that I consider investments... that is I intend to hold them forever. So far, I have not bought any trading properties. I am developing some tactics for running a business which will involve buying, improving and selling property to generate cashflow to fund the purchase of investment properties.

In answer to some of your questions, Nigel:

Nigel: "So, is it investment if I buy a property and renovate it to increase the rent?"

If you bought it prepared to hold it forever, yes.

Nigel: "What if I decide the market is skyrocketing and sell to reap my cap gain and plough the money into a place with low growth potential but big cashflow? Is that investing?"

That is what I call portfolio re-evaluation. It is capitalising on the growth of one asset and changing the direction of the use of those funds based on current circumstances. Selling one investment to move money into another investment is not trading, it is investing.

Nigel: "Surely buying low and selling high, regardless of the timeframe involved is investing?"

Not by my definition.

I also don't consider spending money on an education as an investment. That is a tactical decision as part of a strategic direction to increase your earning capacity (or your enjoyment of life, or your ability to help others, or whatever you desire to gain from the effort).

You cannot buy education and you do not invest your time, you spend your time. If you learn something then never use it, you will forget it. Knowledge is a depreciating asset. The time spent gaining knowledge is an expenditure, not an investment.

A car can help you earn more money, or gain a better quality of life, or let you help others, or just give you lots of pleasure, but it costs you money to keep one and will not continue to grow in value indefinitely.

Similarly, an education can help you earn more money, or gain a better quality of life, or let you help others, or just give you lots of pleasure, but it costs to receive an education (money and time) and your education will not continue to grow in value indefinitely.

Sly Dog added a few comments: "Obviously you can enhance or protect your investment by taking an active role. This could be renovating or even managing the properties. This simply enhances the investment."

I agree... my definitions revolve around the buying / selling of the asset, not how active you are with the asset itself. Adding value does not stop something from being an investment.

Sly: "Buying something with the intent to sell at a profit has always been 'trading', and not investing no matter what the commodity. I suppose the key is in the word intent."

Hey... I think I agree with you there too Sly ! ;-)

Sly: "Buffet also said, "My ideal investment horizon is forever.""

Amen !

In summary... everything I have said here is my opinion only, and as such is purely subjective. Nigel is correct in that we are to a certain degree playing semantics, but I also agree with Sly's assertion that it also goes beyond semantics and into mindset. Now that is a topic we could discuss for hours... the psychology of investors and traders ! Maybe some other time.

 
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"Re: Wraps, flips, l/os and other Businesses (long)"

Reply: 1.1.1
From: Yuch .



The newbies are more than welcome to ask question about wraps. And they can
send a private email to me, Michael G or other experienced wrappers, we
will try our best to answer their questions!! ;)

I hope this helps!


Regards,

Yuchun Chen
Market Management Systems
NEMMCO Ltd
(02) 8838 5042

I am the Master of my FATE, the Captain of my SOUL, but a Slave of my
STOMACH






------------------------------------------
This e-mail is confidential. If you are not the intended recipient, any use, disclosure or copying of this document is unauthorised and prohibited. If you have received this document in error, please delete the email and notify me by return email or by phoning the NEMMCO Helpdesk on 1300 300 295.
 
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"Wraps, flips, l/os and other Businesses (long)"

Reply: 1.1.2
From: Nigel W


"Ideal investment horizon is forever" ???

As much as I'd like to live forever the odds are somewhat against it (other than perhaps in a metaphysical sense - but let's not open that can o' worms).

Being but a simple fellow, I tend to think of things like so:

1) to live you need certain things - needs
2) to really enjoy life there are some things/experiences/services etc you want - the wants
3) in our modern civilization to get both the needs and wants you gotta have cash - it is our medium of exchange.
4) you can get cash in numerous ways:
a) inherit (gee that would be nice)
b) steal it (not recommended)
c) trade your time for a wage or salary (generally at a ridiculously low hourly rate when you consider most employees do a fair bit of unpaid overtime)
d) buy assets that generate a regular nett income stream (shares, property, bonds etc)
e) acquire/create things you can sell for more than cost of production (whether they be widgets or intellectual property)
f) provide some sort of service for $ - but unless you're employing people to do it for you its just like (c)

At present I, like many people, am doing a lot of c) and some d and e. What I'm aiming for is for my my d & e income to far outstrip my c income allowing me to choose to stop doing c and do as much or as little of all of the above as i choose.

The trouble with purely "investing" by the definition you propose is that it takes too bloody long!
At the end of the day, I don't give a rat's ... whether I'm in business or investing. As long as it makes me money - one way or another DURING MY LIFETIME!

Yours hoping to reach the big dollars before I'm as old as methuselah,

N.
 
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"Wraps, flips, l/os and other Businesses (long)"

Reply: 1.1.2.1
From: Ray .


Hi All,

Why split hairs ? " Investment ", by
definition [ Funk & Wagnall ] is the placing of
money , capital, or other resources to gain a
profit. Invest $X and return $X&Y . The entity
and the time-frame used dont matter as long
as a profit is realised .

Cheers.
 
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"Wraps, flips, l/os and other old dogs (long)"

Reply: 1.1.2.1.1
From: Anonymous


Just out of interest.
Sly Dog how old are you and how long you been in property
 
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"Wraps, flips, l/os and other old dogs (long)"

Reply: 1.1.2.1.1.1
From: Jeremy Laws


Sim,
Briefly scanned through this post. You have summed wrapping up brilliantly. It is a business, NOT an investment. It is a business backed by residential Real Estate. I am impressed with that insight. I will use that analogy myself if you don't mind. I haven't been able to put it so simply before.
BTW If people don't see the importance of what Sim said (and it might just be me that saw a flash of brilliance!) wrestle with it, I think it is a perfect summation.
 
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"Wraps, flips, l/os and other old dogs (long)"

Reply: 1.1.2.1.1.2
From: Sergey Golovin


N.W.
At the end of the day, the whole purpose of all commercial activity, whether it be "investing" or "running a business" is to make $.

Yes it true Nigel W. - to make dollar and also provide service to the community (regardless if you like or not you are still providing service to the community even if it is not visible).

How? Well, paying tax, employing people, holding your money in the financial institutions accounts or paying interest rate (which eventually ends up in other forms of investments).

Serge.
 
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"Wraps, flips, l/os and other Businesses (long)"

Reply: 1.1.3
From: The Wife


Well said Sim,

Where the hell u gettin these ideas from? ;o)

TW
~The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function~
 
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