Premier Wealth Management's Adrian Shandley couldn't quite believe a client's stance on the dwindling value of his property.
Five years ago, I went to see a client who had retired with a lump sum of £500,000 to invest.
At that time, he decided to invest £250,000 into a commercial property (with a further loan of £200,000). The balance, some £250,000, he invested into one of our low cost, asset allocated portfolios.
At the time, he queried the fees, and I told him that we would charge 2% to invest his money. “That’s extortionate!” he said and we spent almost an hour explaining the reason why there was a 2% charge (which we all know is at the lower end anyway!).
I asked him “how much is it costing to buy the property?” and he responded, “not that much!”
We then went into the stamp duty, the legal fees in relation to the purchase, the drafting of a lease for the tenant, bank arrangement fees, the valuation costs etc., and it was quite apparent that he was paying in excess of 4% to buy the property.
When I explained this to him, his answer was “oh yes, but that’s different”.
Last month I went to see him to discuss his investment portfolio and the performance it had achieved. Like many investment portfolios over the same period, it had actually lost approximately 1.5% of its value. “That’s a disaster!” he exclaimed, “you’ve had my money all that time and it’s still gone down?”
“Have you seen what’s been going on in the markets?” I said. “That’s not the point, if I pulled my money out now, I’ve actually lost, I could have put it in the bank”, he replied.
“How’s the property going?” I asked, “Has it gone up in value?” I added.
“No, it’s gone down by about 30%” he said, “but it’ll come back!”
He then went on to explain that he had no tenant currently in the property and that, for the past six months, he had actually had to pay the mortgage himself. Equally, the previous tenant had left with rent arrears that he was unlikely to recover, and he had significant legal bills.
I said: “So let me get this straight, you’ve lost 30% of your money in that property, the investment has asked you to pay into it for the last six months, you’ve had legal bills, and if you wanted to sell it tomorrow, it would probably cost you 3% to get out with estate agent fees and legal bills? In fact, when the gearing is taken into account, you’ve lost a lot more than 30% because of the debt,” I added.
“Yes, but it’ll come back, it’s bricks and mortar, it’s quite safe,” he added. “Not like your investments, they’ve actually lost proper cash!”
Sometimes, you just can’t win.
Annual, tapered, money purchase …
As boss Tim Orton exits
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