Bob Jones: My Property World
Here is a review of “My Property World”, by Bob Jones. I originally wrote this article for my old site in December 2005.
It’s arrived!I told you the other day I was waiting for the new Bob Jones book: “My Property World”. Well, it arrived the other week, and I’ve had a chance to look at it. I’m extremely happy with it - this book is pure gold.Actually, the book arrived more than a week ago now, but to be honest, I’ve been incredibly busy - too busy to write about it. You see, I just bought myself an aircraft (flying has been a hobby of mine for years). I’ve been flying it back across the country to my home airport. It’s definitely not shiny and new - but this aircraft is all mine. It is the first ‘toy’ I’ve ever bought for myself by refinancing a property. I’m going to talk about refinancing in a future email.Anyway, since his first book, Bob Jones’ empire has grown wildly. Although he still owns a truckload of industrial property (factories, warehouses, etc), he now mainly purchases office towers - up to 33 stories high. He owns hundreds of millions of dollars of property - the result of a lifetime of smart and sensible investing.Over the years he has refined his investing strategies. It was interesting to see how his thinking has altered since his last book, published in 1977. Although he did some developments in his early years, he is very strongly against development now. He believes the risks don’t justify the rewards. I think he has seen so many developers go bankrupt over the years, that he almost believes a financial disaster to be their inevitable fate.One of his pieces of advice that I found interesting is that he says to give up ‘bargain-hunting’ as soon as you can, and start buying quality. Up until now, I have prided myself on finding and purchasing bargains, so I found this advice challenging, because it was different to what I currently think. But I think he bought bargains in the early days - it’s a nice way to grow your portfolio quickly. But the tip here is to get away from that as soon as practicable. Maybe my next commercial property should be a quality one.
The size of the properties he is buying these days can be daunting - they can feel out of range for one starting off in commercial properties. But the thing is - the principles don’t change, only the scale does.
Remember I talked in my course about the CAP rate, an how it affected the purchase price of buildings? In fact, I used the formula:
ANNUAL INCOME
VALUE = -------------
CAP RATE
If two parties disagree about a number in the above equation, they can disagree about the value of the property.
In my email course, I gave an example where I purchased a property significantly under value, because the vendor and I disagreed about the prevailing capitalization rate. The vendor priced the property using an 18% cap rate, whereas the prevailing capitalization rate for that town was more like 12-15%. This resulted in a nice bargain purchase for me.
Well, Mr Jones gives a beautiful example of buying an undervalued property. You see, another variable in the above equation is the Annual Income. It might seem unbelievable that two parties can disagree on that, but they can, through sloppy accounting and record-keeping. Anyway, when looking at an office building, Mr Jones found $160,000 of “annual expenses”, which were not actually annual expenses. They were in fact one-off expenses, done to prepare the building for sale. Since the annual income was understated by $160,000, the value was calculated too low. Using a cap rate of 8%, the building had been priced $2 million lower than it should have been ($160,000/0.08). Quite a nice perk.
I could go on at great length about Bob Jones’ book. I will definitely be referring to it in future.
It is one of the few books I’ve read recently which has actually had me laughing out loud. His chapter on ‘Property Management Woes’ had me howling - and nodding in agreement. I haven’t talked about property management yet, but I can tell you that I’ve experienced more than my share of incompetence.
I give this book my highest recommendation. Look, I don’t know who does his cover design - the book looks like it
was published in the 1970s, whereas it was actually published in 2005.
I still think it’s also worth reading his original 1977 book “Jones On Property”. The two go well together. I wish I could give you a link to this older book, but I don’t know how you can get hold of it. If you find a copy - grab onto it.
Now - a word of warning. Bob Jones is from New Zealand. This may put you off reading his book. I’ve found people in the past who say “the book isn’t really useful because the author is based outside the United States.” That’s just wrong-headed thinking. If you subscribe to that insular viewpoint, you are really limiting yourself. Apart from the fact that Jones now holds property all over the world (and he argues that the same investment principles apply in any developed economy), it really doesn’t matter.
Of course he might talk about people you haven’t heard of, but you’re big enough to cope with that. And anyone who has this much experience in commercial property is worth learning from, no matter where they are based. For example, one of the best things I got from his book was from a chapter comparing Auckland to Wellington. I don’t own property in either city, but he made some comments about building replacement cost, and the effect it will have on his rents (in short, increasing replacement costs will make him millions more dollars over the next couple of years), which really altered the way I look at some of my properties, and my future purchases.
So, grab a copy of this book if you can - it’s the best book I’ve ever found for gaining an insight into the mind of a commercial property investor.
