Sir Bob Jones is many things: investor, businessman, author, bon-viveur … and regular contributor to Kiwi Property Investor Magazine (KPI), the country’s leading monthly residential investment title. The following article first appeared in the magazine’s March issue (see right). For more information on KPI and how to get your hands on personally signed copies of Sir Bob’s latest novel, Degrees For Everyone, visit www.kpimagazine.co.nz

Thinking Straight, by Bob Jones

- Here’s an interesting little tale about thinking straight as an investor.

A few months ago, the genial boss of Bayleys Takapuna office, John Algie, picked me up at my hotel to show me a new industrial building in Albany. I duly agreed to put in a tender at the suggested price, a waste of time as it transpired as an Irishman (no surprise there) put in a winning bid at a ludicrous figure.

Anyway, driving back to the city I asked John what else he could show me while I was on the North Shore. He thought a while then said he had just the building and instructed his driver to take us there.

One look from outside, a quick inspection, how much? (“$10.5m should buy it,” John said) and I was in. Then came the usual Auckland procrastinations. Someone else had a conditional contract at $10.8m, $300,000 more than John had indicated. The buyer’s time eventually ran out and while he was trying for an extension I was quickly in with an unconditional $10.8m signed contract with settlement at the vendor’s request, set down for the New Year.

A week after signing John was on the phone. “I’ve got a party who will write you a check for $200,000 to step into your shoes, and he’ll meet our commission.”

“No, I want the building”, I said.

Two weeks further elapsed and John’s back. The new buyer will now give me $500,000 to walk.

“Tell him to forget it John. I like the building and won’t be selling.”

John of course, as a commission agent, was beside himself. I’m frustrating his chance for a double sale of the same property. At Christmas I shot off to South America. On my return I received a call from the capital’s top agent, Bayleys Wellington principal and a good friend, Mark Hourigan.

“Listen I’ve told John it’s a waste of time (Mark knows his stuff and would understand) but he’s at me to have a go at you. John’s party will now give you a million dollars to walk away.”

“You know the answer Mark” - and that finally was the end of it. But, therein lies a lesson to aspiring investors. I’m not too proud to bend over and pick up a 20 cent piece on the pavement so don’t think I’m silly at turning down a quick million, merely for signing my name. But the reality is that I’d have actually lost money accepting the offer. Here’s why.

I’m in the business of owning office buildings and long experience has taught me to be very pickety as it can be a dangerous game. Probably 80% of New Zealand and Sydney’s office stock, the locations of my buildings, I wouldn’t want to own for a range of reasons. But every now and again a gem hits the market and we don’t waste time but leap in quickly. Believe me, the Takapuna building fits that category.

I know my business and can say adamantly that it’s about 5 years away from being a $20m property. Alternatively one could cut a deal with the lessees and on my assessment, it’s a certain $10m profit cutting it into luxury apartments, not I hasten to add, my bag.

In short the building is worth a great deal more now than my $10.8m price and certainly than $11.8m. If I’d taken that million with such a quick flick I’d have quite properly been up for tax. Thus I’d have given away an asset at well below its intrinsic value and in so doing, been worse off and not a nominal million richer. The sale price is utterly irrelevant to the value. More important I wouldn’t have the building and terrific properties are hard enough to find at the best of times.

All of this is doubtless strange thinking to this magazine’s readership, given that it targets the residential property investor/trader market. But if you think it through, the logic of my decision will become clear.

Being an investor is not like running a fruit shop. The fruiterer goes to the market early in the morning, buys his bananas or whatever and spends the rest of the day trying to sell them. All going well he does so, but, the next morning the poor bugger has to do it all over again, which is one reason (there are others) why he will never get rich. Compare that with the investor. He puts a lot of effort up front into value creation but having done so, can if of a mind, rest on his laurels and the investment goes on working for him forever, requiring only a little periodic nurturing.

Let’s be frank. In my place most of you would have grabbed the million. One more analogy then. Those of you who would have taken the wrongly perceived profit are akin to owning a fruit tree and cutting it down to sell as firewood for a one-off return. Then just like the fruit shop proprietor, you have to start all over again. Far better to keep the tree and sell its regular output of fruit.