So, I see that everyone here posts about their daily business, works and financial deals, and its kinda funny since I don't talk much personal stuff... So I think I have a good ammount to aggregate... So going out of my comfortable zone a bit... And this gonna be a long personal post...
I had to do with a good ammount of real estate deals and debt... To measure it, me and my sisters own 5 properties, we used to rent out 4 of them, I normally prepare the contracts and adjusments or one of them. So I live from a few differential yield from it...
So, we had around some 550k reais in debt some 7 years ago when we took this family issue to resolve, this is something like 100k usd, but putting in real value it means somewhat 3 popular brazilian apartments here, for base of comparision our minimum wage nominal value is R$ 1.450 and is equal to U$ 263,7 (Or a minimum wage in U$1.250 = R$6.890). An 1:5,5 parity on BRL/USD. I used the previous comparision for also a notion of PPP, purchasing power parity.
So we got all that down to around 120k nowdays, which is due contracts time frame and tributes over real state... But we already have surplus on these opperations, and yah know, people just work as others sources of income...
Just to let it clear, all that was hereditary and tributed through goods donations, my grandfather dealed a lot with prospection in real estate, by buying terrains, plants before construction, and farmland, raising cattle from early on... He used to work at the civil construction segment, both public and private, never was sued over corruption, didn't have much of an education being a farmland person but also a fast learner, it was a lot based on hard working ethics to be decades on it...
So what happens is that he worked for some 4 decades on it and in the last one things started to go down for him, kept workers wages payouts on day literally until his 89 Yrs, bankrupt his main company with some 84 and was opening another after it lol, which he ended before final days... I think was what he liked to do, just a workaholic example... I just remember he would call me on some fridays and ask me to take a cold shower at 4 A.M. so we would go to work on farm on the weekends lol, good memories... But so he started to have way less demand with high brazilian interests, sold and used 80% of his equity, made the donations also to aunt and cousins... Adquired debt, and so we had to deal with remaining of his credit opperations by using collateral... I won't discount inflation from 2 decades ago on this equity when BRL:USD parity was 1:2. To be honest he made everyone spend half of it for him lol.
Kinda insane when I go back and think I used to deal with someone so abundant, saying yes for everything all the time, I worked with him for some 7 years also and I was kinda blind to notice since it was the normal behavior I was used too (I didn't like to ask him for nothing, somehow he installed in me a very independent behavior of one who take decisions)... Now I see that the people that are the most willing to give are really the ones that have the most returns... It also taught me a lot about resilience since these same persons are the most used to take a NO for granted and comeback with new ideas right next, it taught me a lot of humbleness to deal with everyone and adversity. They are wisely silent about all that, which turns not so intuitive to understand.
So when I was left to solve it my mind was kinda in turmoil and turned a bit depressive, ngl. It felt like a mountain since I didn't have the same cash flow capacity to deal with... And its kinda impossible to carry on a family business, not the kinda of dharma anyone asks since you are yourself and want to take own decisions... But anyway, I had to deconstruct my own scarce mentality and perspective during this time. I wasnt drawing good things that way... But overall I know that was a thing that I had to deal and no one else business, and its totally all right...
Some egoless philosophy and being bookish also helped a lot (Im on track to read/listen 200 books this year, and was somewhat a bit over 100 on the last one...).
So, even doing an public economics sciences college (which people talks very openly about own finances too) and having worked with public accounting at same time as trainee for 1 and ½ Yr (that I decided to leave to go back to study and was the right decision), nothing of that really teachs you real world problem solving mechanics and action, fundamentally... By learning how to solve this that really got me into the investment world. We really used to lack information of it on Brazil, only 2% of population used to invest in stocks and that number grew to 5% or so since the pandemy. Accounting, which is the language, is kinda unknown subject to most yet...
So through immersive studies I learned a lot and will share a bit.
Ok, but how do we do it then? Well, beyond learning how spot each default contract clauses...
I'll teach you the 8th wonder of the world, the Compound Interests Rates formula. I already wrote about it, but lets look into practice... And yeah, we actually learn it at financial mathematics subject at economics college. I just don't think people associate it practially.
To have a notion is:
M = C x (1+i/n)^nt
Where the final value (M) is equal initial capital (C) multiplied by 1 + interests (i) over the number of periods its compounded (n), potencialized by n x time (T).
Note that on (i) you gotta throw the % to decimals, like 10% = 0,1
It turns way simpler when the time frame is measured in years because the number of periods compounded is 1. So the interests fraction at the formula is equal the numerator since the denominator is 1. And the Time is equal the total number of years... You can inverse this formula to find the interest as icognito or some else value there, but it turns more complicate and unnecessary, and I don't remember much how to review in others ways...
I'll give a simple example for better practical understandment
Lets say 10.000 bucks that yields 10%/Yr over 20 Yrs.
Results for 1, 2 and 20 years would be:
M = 10.000 x (1,1)^¹ = 11.000
M = 10.000 x (1,1)^² = 12.100
M = 10.000 x (1,1)^²⁰ = ~67.275
But so... From now on I'll reffer values mainly in reais.
We had a contract that was like 370k reais in gross debt (accounting interests), we say net debt without accounting interests in this case (for debt examples). It was very badly done, interests were high and the time frame long (20 Yrs)... This is the inverse of what you want to do!! Lol
Im actually so glad this was taught to me through that, I guess he didn't have much of this formula notion, idk, but also expected to pay it before this time with work itself...
R$ 100k of that we paid in some years through the rent revenue of a property that was as collateral in this contract, a medical clinic in edifice. Remaining somewhat R$ 270k.
So what I had to do was a swap of interests rates here, that by itself lowered the final value. A really good bank manager helped us to solve it. But the bank conditioned that we took an additional R$ 20k loan that we could use to amortize the net debt in the contract after the interest and time frame update. Our country nominal interests was near zero at the time and we agreed to the lowest total effective cost (CET here), which includes their administration cost, so it turned to ~5%. Some goes and backs to the city registry office and was solved, the contract stayed paused for some 3 months and we stacked the revenue that would be paid instead, an extra R$ 6k or so, there is also some high fees in theses registry offices that can vary from 1% to 3% of these contracts net debts values and others low fees frictional costs to check documents, and an engineer fee to measure property value, which you pay to the bank before that.
The main thing you gotta understand on these deals is that TIME is the potence in the formula, which will mainly impact the final value (I'd say even more than the interests on it). So when you can use cash to amortize it you can choose to debit it in the installment of the financing or in the time itself. So yeah, you choose time for sure here!! So you pay the least long term ammount as possible... In the negotiating itself previous to this extra amortization we could re-define a time frame, which we lowered the most possible already. Initially there were 13 Yrs left and at the end it was 7. The final value decreased by R$ 135k (near an popular apartment of difference), and half of the remaining value...
My sisters were kinda shocked and even the manager that was on his 50s and there for a good time, he sounded like an economist and we had good talks about inflation, interests rates at the time (after pandemy breakout), oil crisis (OPEC), how stocks is a fun game, commodities and so on... He was very surprised! And said he never saw a negotiation go so well like that. But thats because I knew exactly what to do... And we didn't have intermediares to charge whatever ineffectively.
I didn't tell him my background lol, I learned with J.P. Morgan that at a negotiation table (even more with the bank) you talk the minimum so they keep pushing to make you the best deal as possible lol, thats it, you just remaing silent when dealing with numbers and it goes naturally, you can even troll on that... You think I said something like "interests formula" or "compound value" there? No way...
But right after it the installment (we call it "parcela" here or parcel), went down around R$ 700 / month. That turned cash flow... In this agreement we used a contract which decreases the installment progressively through time, an auto amortization, which is better for long term contracts, we call SAC, but you can also fix the value through a "price" contract for short term ones.
This stuff was some 3 yrs ago, so now this differential is like + > R$ 1000 / month cause of this stuff, so if you account right its not only the total nominal difference but also the money we are receiving instead during this time...
Well, we leave this differential revenue to my sister to use. She has a daughter with autism, my niece, that we care a lot, and uses extra cash for living standard... Its understandable.
But smarter would be to use these differentials and amortize monthly or periodically on the time again, which you can do by your bank layout itself without need dealings. So progressively you get this over faster and pays the least ammount of compound at the end... More money left, more money to invest...
As Warren Buffett says, the best investment you can do first is to quit debt, it doesn't make sense to pay interests as the logic in investing is the opposite and make money to work for you through time... Compouding it. Others good tips is to spend less than you earn and to use cash instead of credit for most of daily expenses.
And taking this pause 'll tell another usefull stuff learned during it... Do you even know how companies measures debt risks? Its normally on net debt / net equity or net debt / ebitda , some use ebit, but both of these revenues multiples are deceiveful because its gross value, its better using some indicator like nopat instead for comparision... But net equity is usefull, and what I saw was that my grandfather used few leverage for his segment, and its all a matter of perspective to how you look to solve some issue.
You see, even what we had to deal was somewhat around 15% of the net equity correspondence, and then we turned it to around 3% now... It turns way easier to look, isn't it?!
So, anyway, this contract its on my sisters, I tryied to do a portability first to another bank by putting own equity as collateral, but was tough to mix names that way... So we were able to renegotiate it at the same bank. I had to take a power of attourney for bank representation in their name. Of course I don't ask any return, Im just really glad to help them. At the end I learn the most.
We had another 75k gross debt in another deal with a truck as collateral in another bank and my sisters solved the remaining 50k left with their own worked money... We help each other on what we can and Im very grateful for it...
Sometimes people think stuffs are only giving money and ok, its done... But they are not accounting the time spent and knowledge to solve stuffs that you'd need to pay people to do it wrongly instead.
I also help to solve tributes over these real estates, which everyone does, yah know, which had accumulated to some R$70k during years and we solved most of it, remaining some 20k to deal with and negoatiate on some city windows for it. We'll need to probably hire an assistent for next years... Cause of no infinity time...
Thats not the first real estate deal I did beyond renting locations... I also had this medical clinic bought on plant for 70k and sold it at 243k after 11 Yrs, at cash. Tributed 34k on capital gain + some frictional cost and spent some 15k left nonsensely while young with whatever crazy stuff under the sun.
But so, I bought an apartment in a residential area with good open area growth perspective and that I used to rent out too, we got a nice discount since dealing with cash and didn't need to involve bank stuffs besides transactions...
The deal is that recently last year's end my sister was needing to buy a common car and stop spending with uber in a daily basis. So I took for her 50k on credit. Coincidentally the dude who was renting this apartment left. We reformed it with the help of her friends couple which deals with construction too, so was cheap, efficient and fast, turned very nice. So she moved there with my niece. And I ended up winning some 30k reais over it by upvaluing the place... We used another revenue from a warehouse we rent out to a solar panels company to pay for it and she used some of this credit for some preferences done... For me it was a free deal lol. A mcdonalds was opened next to it and inflation by itself upvalues stuffs...
I know that this nominal gap inflation when higher than real wage increase creates an inequality to adquire real estate, but what am I supposed to do? Leave everything to ruins? I can only expect to aggregate somehow for people to become entrepeneurs and free.
I value everyone's time a lot, but I also know some 'll criticize I wasn't working during this time solving a lot of stuffs (that I probably wouldnt even have time to learn or go/do), ironically Im sure we are better with me dealing with it than having a wage... I also save my father some 4k of medicine / year and try to help with his retirement deal, my cousin has an lawyer's office and doesn't charge me. Yah know, epilepsy, limited mental capacity, so he doesn't help much, but I don't blame that of course... He has a good retirement contributed lol, some older dude did it...
I was looking for work at same time, cause Im very used to be too active, even though taoism is nice, just can't deal with some inertia and doesn't make me feel good, so I want to go back to work for more socialization and feel active, yah know, 'll look at it as effortless action, or least resistence way...
I went to the biggest construction company job selection here some 2 years ago, called MRV, and they thought negative cause was already dealing with own real estate...
Went to a place which solves financial credit deals and they didn't want someone who could do it right... You see why the manager was surprised... Imagine that everyone has to pay someone to arbitrage it or don't have the knowledge...
The equip of vice chairman of councilmen in my city came to my house to potentially offer me a job "to help" me lol, they wanted me to deal with licitations, since I could do all the rest, making processes travel between the secretariat of origin, attorney's office, control, finance... Cause used to deal with it working administratively with construction... I went to search and they had detour of funds... I just refused lol, its better to have no job and a clean mind... So yah know, kinda weird place... They wanted me to also be part of their campaign lmao, wtf is that?! They are more lost than a motherfuckers son at the fathers day to ask me that. Idk how these people are there and how others vote on them... Its the 8th biggest GDP city in our country cause of oil royalties... Anyway, sick fuckers... Maybe they don't understand some are not like them? Some mirror effect, idk... They won't shift my view, we gotta keep seeing the good or whats true, isn't it?! (And without loosing the 1st offender degree, heh!!).
And yah know, a bit on personal, Im proudly at the top 1% of most frugals, I do my own chores like cleaning my room and dishes, Im vegetarian and do my own meals, a bit of ocd on cleaning actually, I do my laundry, Im a cyclist, I cut my own hair since before all that lol, they just cant do it right... I save money and invest and I like agriculture... My hobbies are weed and books... And my circadian cycle is going to sleep from 9:00 p.m. - 10:00 p.m and wake up from 3:00 a.m - 7:00 a.m. So yeah, idk why you are reading this but now you are more familiar somehow and I use this time for some introspective reflection, you could just had ignored all that lol. Just want to share I really like hive and how we interact in a financial system...
I try to be the most honest as possible, and am always watching my own reflex to run from problems sometimes by avoiding being too direct when I just want to really say something like fuck that and what I really think lol... Its good to learn to say no for what you really dont want and that brings freedom. My take on that is that we gotta help others in a way that won't harm ourselfs in any way too, cause thats nonsense, and that can be even financially or in a matter of time... This isn't egocentric! Go fish.
Now see, after all that debt talk... Am I against borrowing money? No, but it depends a lot, there is smart and dumb debt...
Good debt are investments that will generate more cash than its costs or at least pay for itself and leave you with more equity at the end... So 'll give a short recent example.
Warren Buffett's Berkshire took a 5Bn usd loan from BOJ (Bank of Japan) at 0.5% interests / year (you can hear Mohnish Pabrai talks on that). And with that cash he bought 5% of 5 of the biggests blue chips at Japan, that were being negotiated at cheap P/E multiples and a good USD/JPY currency exchange ratio at the time, and that were paying on average 8% dividend yield / year, so only the dividend would pay the frictional cost of the opperation, so it was 5Bn for free, yah know... I wont make a Yield On Cost (YOC) math on that since they already upvalued and break even is gonna be faster, but you got it...
Here at Brazil is tough because business or the Ibovespa index has to overperform a high yield curve and capital cost (and bonds as cost of opportunity), also discounting inflation (real interests), while in US and Japan, the S&P and Nikkei can overperforms their low yield curves in an easier way, you see what I mean...
But Im in favor to do opperations that will make sense like that on future and generate more cash and yield, because thats like a dharmic duty, probably gonna open some nice business or maybe a franchise, I just wonder a good ammount on it because I know how much time and work stuffs takes, or even karma... Or you try to tell me what else is to be done that doesn't sound irrational...
I'd also like to add some idea that Im reflecting for some time... Its open to everyone to make a real estate holding, at my country there is tax exemptions for it. Like, you don't need to pay ITBI while buying property, which is a tribute when doing so, and the tribute over capital gain goes down to 6.7% (from 15%) when selling. But you have to do quarterly accounting reports. Anyway, even a cost with accountant is cheaper on long term instead of the tribute. The deal is that you gotta open this legal entity and send money to it before deals... Your heirs will inherit a societary share over it instead of a normal distribution. Idk too exactly all the details and need to search better... Some people even think about off-shores.
That was what I wanted to share. Thank you very much for reading and I hope my shared time helped you to understand how to solve stuffs that a lot of people have to deal... It took me a great mental effort to write and post this not by the technical side but most for the personal, idk why, but sounds helpful now and thats it. This is a good box to drop thoughts.
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