19 Oct Share your adult finance journey with the kids – Ken Raiss
As well as talking to us about the topic of educating our children about investing and finance, our feature guest Ken Raiss says he understands the importance of discussing wealth at home as part of educating them that it is not an evil word. Ken also thinks we should share our adult finance journey with the kids as part of their education.
Kevin: I’m pleased to say that our feature interview in this show, which is where we’re talking about the message that you give your children, is none other than Ken Raiss. Ken is a regular on our show.
I imagine you have really been drilling this into your kids over the years, Ken. How are you?
Ken: I’m well. Thank you, Kevin. Hi, listeners. Drilling is probably not the right word.
Kevin: That’s my terminology, Ken.
Ken: Kids take it in at a different rate or a different pace, so you definitely have to tailor the discussions to the individual child. But I think it’s important to talk about wealth at home so that children start to understand that it’s not a dirty word and that it can actually be very helpful in doing the other things they want to aspire to in life.
Kevin: We can actually shield our kids a bit too much, can’t we? In other words, for them to think that it’s just a bottomless pit. We don’t involve them in the fact that things are a little bit tight and we may have to cut back a little bit. It doesn’t hurt to share that with them when they get to a certain age, Ken?
Ken: It certainly doesn’t, and I think it also helps to share the solutions that you put in place and why so that kids start to get values around that. That, I think, is very important even at a very young age to start instilling those sorts of values with your children.
Kevin: I’ll come back to talking about those kinds of messages, Ken. But I’m really keen to find out from you what molded you. How did Ken Raiss grow up, and what were the conversations around your kitchen table like?
Ken: Can I say there were none? Then all of a sudden, at age 17, I found myself in the big, wide world and had to survive.
Kevin: It was pretty much the way it was, wasn’t it?
Ken: It was pretty much the way it was.
Kevin: What do you wish they had told you?
Ken: It’s like crying over spilt milk.
Kevin: Yes, but there are some good lessons to be learned over that, aren’t there?
Ken: Yes. What I’ve done is while not trying to talk to my children along the lines of what I wish I had been talked about or taught, I brought it to a more contemporary situation – because there are 20 to 30 years, depending on when you have children, between when you would have a conversation with your parents to when you have a conversation with children, and you learn a lot in that period of time.
The discussions I’ve had with my children have taken into account my own experiences – and can I dare say that of many of our clients as well? Because you learn from everybody through life. It was really instilling in them core values – and I can expand on some of these – teaching them to save, making sure they pay their bills on time, teaching them that they have to do some work; you get nothing for nothing.
And as the kids got a bit older, how to buy a property and, really, the methodology and the process you go through to invest, I think, is very important because they don’t teach you that at school – and there are shortcuts, if I can put it that way.
The shortcuts are you don’t make the mistakes and lose a lot of time. If you can leapfrog and teach your children to leapfrog, they get to where they want to get financially, I think, much quicker, and certainly, with less heartache.
Kevin: As a parent, there is that instinct – isn’t there? – that we want to help our kids, we want to cushion them, make it as easy as we possibly can, so therefore that has led, over the years, to us maybe giving them a little bit too much or making it too easy for them.
I’m not saying in your case, Ken, but certainly, many of the people I speak to, they’ve made that mistake and they’ve suffered by it because the kids don’t fully appreciate the value of money.
Ken: Correct. They don’t see money as a means to an end. Money, really, just is the tool you use to achieve your other goals and objectives, whether it be a work/life balance, whether it be to pursue your dreams, or whether it’s to give to charity. Money is the tool, so I think you have to teach children that money is not the be-all and end-all; it’s what you do with it.
Kevin: Money is not something where you just got to a thing in the wall and it pops out.
Ken: That’s it, the Bank of Mom and Dad.
Kevin: You actually have to earn it, don’t you?
Ken: Correct. You have to teach your children the values of earning it and then they value it.
Kevin: Let’s broaden this conversation just a little bit. I’m keen to hear about you and your journey. I know you’re at that stage in life where you’ve intelligently put aside a nest egg so that you’re never going to really suffer. But where did it all begin for you? Where was your first investment property?
Ken: I think my first investment property was around age 22 or 23. But can I say my first investment…? I don’t necessarily think I would do it again this way, but I first started investing in super as a 17-year-old – unheard of in those days.
Ken: I think that’s not necessarily the way to go today because you can’t get your hands on it. That’s what I didn’t realize at that point in time. I was doing it for when I’m 65.
I think the savings component of investing in super was the critical thing, and that’s why I’ve taught my children that they need to save. Even when they’re at school, go and get a part-time job – not so much that your studies suffer, of course, but to instill those life lessons in you. Once they’re working, put at least 10% aside to save for investing.
The hardest lesson, I think, I found to instill was debt is not a dirty word. Debt is not evil. Debt is not something that will cause you great heartache. Like anything, improper use of debt can certainly create all of those problems, but thought through with a risk strategy, debt is your friend because leverage is what’s important. Save a bit, borrow the rest, and understanding how you’re going to fund that debt is very important.
Kevin: Intelligent use of debt, isn’t it? Keeping it in perspective. There was a time when there was a saying that said “It’s our national responsibility to have as much debt as we possibly can and then work like hell to pay it off.” I don’t know that I necessarily follow with that.
The other interesting word you used there – and I want to talk to you about that – is risk. As a young person, I remember my risk profile was actually high – I was quite prepared to take pretty high risks – but as I got older, I found I became a lot more risk-averse. Do you think most people are like that?
Ken: I think most people start off very risk-averse. Risk takes on many different guises, of course: not only the debt, but I just notice even the difference in the types of properties my kids bought. A property that they could do a reno was one of my children. Another one who really just didn’t like the idea of that, we bought something that didn’t require any work.
But in all cases, I got them to learn how to research what type of properties grow. It’s the capital value that I taught them, not the income stream at the beginning, because as that capital grows, you can then borrow against it to then go and buy the next investment property. The income from the rent doesn’t help you greatly in achieving that growth projectile.
Kevin: That’s leverage you’re talking about there.
Ken: Yes. Leverage it, but buy a property that has good capital growth because that’s what gets you into the next property – the increased value that you can borrow against.
Kevin: What was your worst investment?
Ken: My worst investment, I think, was an emotional purchase of a unit on the waterfront within a large development.
Kevin: Was that new off-the-plan?
Ken: It wasn’t off-the-plan; it was completed, but it was very similar to an off-the-plan purchase. I had bought three other off-the-plan properties, which all did very well, and it took me many years to realize it was more dumb luck than me. I just so happened to be in the right place at the right time.
Kevin: There was a time when buying off-the-plan actually made a lot of sense. You could actually buy off-the-plan, flip it, and make some money before completion but you can’t do that nowadays.
Ken: No. Can I say the world, the developers, and the banking institutions are too smart for that?
Kevin: They are.
Ken: I signed a contract close to the bottom of the cycle, three-year construction, and when it was time to settle, the property had certainly grown at least close to 50% in value. It took me a while to realize that wasn’t me who did that.
Kevin: You were Johnny-on-the-spot. You said that was your worst investment. Was it your worst because you bought it with the wrong mindset? Was it like you were what I call the ice cream licker, in love with the lifestyle purchase?
Ken: Yes, that was a very emotional purchase. It was probably the only one I’ve made emotionally, and coincidentally, it’s the only one that really didn’t do well. But what I did is I came to that realization pretty quickly and sold it. I sold it at a loss, but cut my losses and rolled that money into something else. A lot of people can’t do that.
Kevin: You learn from those mistakes, don’t you?
Ken: Yes. I think the big lesson was cut your losses. I review my properties periodically, and the one question I ask myself is “Would I buy that today?”
Kevin: Obviously, the answer is no. What has been your best investment, Ken, that you would say, “I’m really proud of this one, I’m so glad I did this, it’s still in my portfolio, and it’s going to stay there forever”? Is there one of those?
Ken: There are ones, but they’re much later in life where I had the resources behind me that I could fund a construction. Hence, the utilization of the land from one property to multiple properties.
There, again, people can make a lot of mistakes: they build the wrong thing, they overcapitalize, they make it a piece of artwork as opposed to a good, solid investment property. I brought all of those principles in, and it was the ability to use land for multiples as opposed to one, so they’ve done quite well.
Kevin: Ken, putting you on the spot here now – not as if I haven’t done that already, and you’ve responded very well, thank you – but in closing out, I just want to ask you what you’ve learned over the years, maybe the biggest mistakes that you’ve seen investors make. Let’s talk about property. What are the biggest mistakes you’ve seen investors make that you wish you could get them by the scruff of the neck and say, “Hey, listen, don’t do that; it’s not good”? What would they be?
Ken: They bought the absolute wrong property from the beginning. There is a thought, I think, among many investors that you can make money out of property. If you live long enough, you might, but you need to truncate the time to use it within your lifetime and certainly, within a relatively young age, not “I’m 100 and I’ve now made money out of property.” They haven’t done the research to buy the right property.
The next mistake is they haven’t structured it and put it in the right name. Thirdly, I think they haven’t created a system that allows them to fund that property when times go sour. I use the word “buffer.” You need to create a pool of resources that can help you through the bad times, just in case.
Kevin: Is there a percentage to that buffer, if you look at your overall portfolio, or is it all about how much gearing you have?
Ken: It’s all about how much gearing you have, but the buffer is not a dollar value as much as a time period: how much time do you want to feel safe or safer if something goes wrong? If that’s ten years for you, you’d better have ten years’ worth of money in case things go sour. If it’s two years, then have two years. Because what you want to be able to do is have an orderly exit. By that, I mean a sale in case you want to.
You don’t want the banks knocking on your door forcing you to sell and maybe accept a fire-sale price. You’d want at least a couple of years, I would have thought, because in most instances, you can have an orderly sale in that period of time.
Kevin: Ken, you make so much sense – you always do and I appreciate you giving us so much of your very valuable time today.
Ken Raiss has been my guest, and he’s been our feature guest this week in the show. Ken, thanks for your time. I look forward to catching up with you again soon.
Ken: Thanks very much, Kevin.