Mog

This is the real estate side of things. If you’re after the Guides to Life, that’s the other website, linked below.

This is the homepage for Mog’s real estate developments.

It’s 50% log book and 50% keeping the financiers up-to-date.

If you’re looking for the Guides, click here.

What does Mog do?

Mog purchases properties and makes them more properties. (How’s that for a one-line summary?)

I look for standalone houses on large sections, where the house is positioned in such a way that another house can be placed on the section. Then I place another house on the section. In the process of doing so, I make an awful lot of money. (Okay, three sentences, is that better?)

How does that work?

  1. Buy a house, with land
  2. Buy another house, without land
  3. Move house onto land
  4. Profit

We can break that down further. And you want to know where your lending goes, right?

1. Buy a house, with land

The S&P “standard” deposit is 10% on unconditional. Even in Tokoroa, that’s a good 30-40 grand. Typically I do not carry this much cash around, so I borrow it from you. It’ll come back around on settlement day. (Typically I also try to get away with a 5-10k deposit instead of 10%, which I do carry around, but that doesn’t always work.)

*Contract deposit is not house deposit. Contract deposit is goodwill money that says “I intend to finish executing on this contract.” House deposit is the 30% of the sale price that you need to have somewhere because the bank will only lend up to 70% of house value. That somewhere may or may not be easily accessible to pay the contract deposit out of.

2. Buy another house, without land

First there is a deposit to hold the house. This can be 30% of 100k, which is another 30 grand. I still don’t carry this much cash around, but luckily I still have the last 30k you lent me, right?

3. Move house onto land

Some expenses are incurred in the course of getting the land ready for the house, like council fees, surveying, drafting, and site prep. Those I may or may not have managed to cover out of pocket, and if I didn’t, then I’ll get you to foot the bill for them. This might easily come up to 20-30k, if not more.

Once we’re ready for the move itself, the house has to be paid for (mostly) up front before it’s shifted. (Depending on the company, they may or may not be OK with a contract that says last 5% after it’s tied to piles. But that’s still 95% of 100k.) I really, really don’t carry this much cash around. So I borrow the other 65-70k off of you.

And then I still have to get it connected to services (20k) before the bank thinks it’s worth money.

This is the point in the project that requires the highest amount of liquidity, which I’m getting from private lending.

4. Profit (…maybe?)

Now that the house is tied to piles and connected to services, the bank will finally lend on it! Hooray! I borrow all the money I owe you at bank rates, so I can stop paying hard money rates on it.

Okay, that’s a bit of an oversimplification, because it’s not a completed house by any stretch of the imagination. I still have to clean up damage from the move (10k), and finish off any required renovations ($???). Anything I can’t get from the bank, I’ll have to get from you again.

5. Profit (for real this time)

Council signs it off, it’s now officially a completed home that people are allowed to live in. This increases its value to the bank, so they’ll lend more against it. Yay! Now I can actually return your money in full.

Except for the things that aren’t required for council sign-off but are required to make it useful as a house. Like driveways (10k), fencing (5k), decking (10k), etc.

(Just kidding! I made enough money on the deal that these can come out of bank money.)

6. Repeat

I mean, you didn’t really expect me to stop at one house?

Why you should lend Mog more money

In the first place, if you lend more money, you get paid more interest. You like money, right?

Some of the stuff I listed under step 4 can actually be done during step 3, if I have the credit line to do it. Similarly, step 5 items can be done during step 4, with a sufficiently large line of credit. This means I’ll be paying interest on more money, but it also means the project gets done in less time, so total interest paid more or less comes out in the wash. Turnover rate is the key determinant of earnings over time, and turnover rate is directly linked to size of credit line.

In another direction, I could make do with a smaller credit line, by reducing the price I pay for the house up front. Call it a 65k house instead of a 100k house. But then it’ll take an extra 50k of renovations after the fact to reach the same standard. Final result: less profit to me. If I’m limited by my credit line, then this might be the only way the project gets done at all, but it does rather suck on a wallet level. And I have to make this decision at step 2, before I know how much the additional expenses of steps 3-5 will cost me. (I have an estimate with some error bars. That’s not the same as knowing.) I’ve done all my due diligence and I believe my plan is well within safety margins, but you know what would let me make more profitable decisions at that level of confidence? A bigger credit line, that’s what.

tl;dr Mog gets more money => Mog makes more money => gravy train continues