SCOTT PICKEN
PROPERTY GOING GLOBAL
business, he contracted cancer which led to his business failing, our being
bankrupted, and the onset of clinical depression. The last ten years of his
life were really too tough for him as he fought the cancer, the depression,
and a deterioration in his overall health.
2. On the 1st of August 2005, while I was in London, I got a call
from my mother to say my father had passed away at the age of 59.
I couldn’t get home as there were no flights and my incredible friends
pulled out all the stops and got me home (I still don’t know what I would
do without them). When I got home, as the oldest son I had to look
after all the affairs. I had no idea what to do, and luckily my uncle was
kind enough to help us through everything. When we got his affairs in
order, we found out the pension payout to my mother was R480,000.
Remember, in 1995 he was paid out R500,000, and so in ten years the
wonderful experts on the stock market, with all their fees, had managed to
not only NOT grow the wealth, but actually reduce the capital amount.
I wrote an article a month after my dad died to try and explain to
people why I believed so much in property. I already loved property and
had been successful in it and it made a lot more sense to me than giving
money to people on the stock market where I had no control. I had been
successful in property, as I had thought out of the box and had used my
skills to create value, something I don’t believe is possible on the stock
market unless you have mastered it in the way my uncle has done. I
showed people in my article that, based on long-term trends over the
last 30 years, where property in South Africa had grown by 12% a year
and earned a net yield of 8% each year, what would have happened if my
parents had bought property as opposed to putting R500,000 into the
stock market.
According to the ABSA Housing Index on 31 December 1994,
the average house price in that year in South Africa was R166,889. If,
therefore, they had just bought five houses and put down a deposit of
R100,000 on each their LTV would have been 40% at a very low risk
and the mortgage payments and other costs would have been covered by
the rents. Let’s for argument sake say that it would have been cash-flow
neutral in 1995 (actually, it would have been R2,935 in the black for the
year, but let’s be conservative). After ten years, each property would have
been earning a NET, after all expenses and interest, of R107,115 per year.
Now, if you have five properties that amounts to R535,573,75 in
passive income per year, more than the initial capital invested in early
1995. Add to this that, according to the ABSA Housing Index, on 31 July
2005, the day before my dad died, the average house price was R708,542.
Each house, therefore would have had equity over and above the initial
R500,000 of R541,653 per house, or R2,708,265 in total. Rather than a
pawltry R480,000 in capital returned, with no passive income, my mother
might have earned over R500,000 a year by doing nothing (management
fees are included before the net return) and have achieved R2,7 million
in equity, as well as the original R500,000 that had been invested. A NO
BRAINER!
My final thought on this is that it is now eight years since my father
passed away. My mother is really concerned about money, what is going
to happen in the stock market, and making sure she has enough for
her future. If she had still owned those properties, however rather than
investing in a pension fund and the stock market, she would have been
earning passively R2,091,408,765 a year after all expenses and in two
years all the loans would have been fully repaid. She would also have had
R5,346,055,00 in equity in the five properties.
I suppose you now know why I am passionate about business and
property and why I have dedicated my life to mastering both skills for
myself, my family, and anyone who is important to me.
XXIV
XXV
The question is: why do I tell you this?
Well, I learnt many lessons from this but the two major ones were:
1. When my father and his Rainbow Chicken colleagues started
their business he was 49. THey had no idea how to be entrepreneurs.
They started a small business, but they had that corporate mentality.
They bought a fleet of cars and branded them, they even had coffee mugs
branded, because this is what you do in the corporate world. But when
you are an entrepreneur, you have to be much more nimble (as Clem
would say – Foxy) and you do things on a shoe-string budget until they
work. I decided then and there that I was not going to go and work in
a corporate job and then risk everything later in life. I truly believe, as I
mention in Chapter 3, that being an entrepreneur is a learnt skill and the
only way to learn is to get on with it, because you are going to learn the
same lessons whether you are 20 or 50, no matter what your corporate
experience or education. I decided I was going to start as soon as possible,
long before I had any real commitments and, if I failed, I could sleep on
a friend’s couch. I was going to master business from as young as possible
and control my destiny, just as my dad had dreamed of doing.