From Near-Death in Nigeria… to Lifelong Investment Lesson…
Our Suzuki jeep was stopped on the right hand side of a T-junction.
The outstretched arms of a truncheon-wielding cop ahead kept our lane of traffic at bay while the line of traffic coming down into the “T” was negotiating the left or right turn in front of us.
The screeching of tyres and loud rumbling pierced the sound of the daily traffic on my left.
A massive fuel tanker truck was lurching rapidly down the hill into the junction. Clearly out of control.
The driver had three options; try to turn left… right… or plough straight ahead into the houses on the other side of the junction.
Sitting at the T-junction, a quick prayer to the heavens was sent… “please don’t try to turn right!”. That would have brought this giant right into us…
It looked like the driver was trying to turn left, away from us. But with the huge truck barreling down the hill with such speed and momentum there was no hope that he would make it through the 90 degree turn.
No chance at all.
There were two men, standing on the right hand side of the cab, perched outside on the truck’s running board.
[The ‘running board’ is that small ledge that juts out beneath the front doors of a truck, giving the driver or passenger a step up into the cab.]
They slowly realized what was going to happen.
As the truck entered the junction, vainly trying to make the turn, the inevitable happened… it began to roll.
In slow motion…
One of the two guys on the side of the truck leapt off and hit the road, just as the truck rolled… He and his companion were crushed as the entire rig turned over on to its side and crashed into the wall guarding the row of houses.
Fuel immediately started to spew from the tanker. We sat in our car, slack-jawed… front row seats to this awful spectacle.
We were just 20 yards away from where the truck, now on its side, came to rest.
“Taju, go! Get the hell out of here!” I urged our driver.
I confess, my language may have been a touch more colourful at the time…
Taju, our driver, required no further encouragement. The Suzuki jeep was jammed into gear, the accelerator planted to the floor, and we sped past the truck through the growing pool of fuel that were now starting to flood the road.
It would have taken but a tiny spark for this to explode, engulfing us and anyone else nearby in a massive fireball.
But we got lucky. And not for the last time…
My wife Gabrielle, and our two-year-old son sat stunned in the back of the jeep.
This was Nigeria, 1977.
We were based in Ibadan at the time, the capital of the Oyo state. I was working with a team preparing the master plans for a new state capital city in Abeokuta, in nearby Ogun State.
The assignment had the core team members based in Ibadan to do all the background surveys and research which would be the basis for drawing up plans for this new city.
It was a three or four month posting, so we decamped the family from London to Nigeria for the duration.
It was in the early days of Nigeria’s oil boom. Money was being lavished on all sorts of projects around the country.
But Nigeria was still very rough around the edges, to put it mildly.
We witnessed so much death, first-hand, in those few months… from dead bodies on the roadside and fatal car accidents, to executions, shootings, you name it.
But despite the violence and occasional tragedy, my assignment in Nigeria provided some incredible experiences that will live with us forever.
And amazingly, it provided the makings of an investment portfolio and investment philosophy that has carried with us ever since, and still does to this day.
My assignment in Nigeria afforded us a comfortable life by standards of the day. We resided in a hotel in Ibadan and received a weekly allowance to cover all our living costs, including travel.
Each week I would return to our room and throw a thick stack of Nigerian Naira (the local currency) onto the desk.
The hotel bills would be paid, any supplies bought, and there was usually quite a reasonable amount left over.
On top of that, my core consultancy fee, together with an overseas “hardship allowance” was paid directly into my U.K. bank account.
And there it remained, quietly building and totally untouched during our stay in Nigeria.
On our return to the U.K., there was tidy pile of cash in the account.
There was no way I could have accumulated this little pile living in London, paying its high rents and high living costs.
What to do?
Our first thought was to use this cash to fund our entry into London’s now-growing property market.
Over a couple of months, we searched the Hampstead/Highgate/Swiss Cottage area of the city within close travel distance to our office in Hampstead.
(This is north London for those not familiar with the city.)
There was no shortage of housing on the market for sale.
It would have been easy to stretch our deposit (i.e. borrow more money) and buy something quite upmarket. But my conservative streak suggested I manage expectations and thus buy a more modest residential unit.
I had crunched numbers on servicing a mortgage at the interest rates at the time. I’d also run a few alternative scenarios with higher interest rates.
We could have reasonably afforded the down payment on a property two times the price of what we eventually bought. But I was worried about the future interest rates, and how they could inflate our monthly mortgage repayment amounts.
And as it turned out I was right to be concerned.
A couple of years later interest rates soared, touching as high as 17% in late 1979. My monthly mortgage payment doubled.
The more modest residence was looking better by the day. Servicing the mortgage on the more expensive upmarket places would have seriously strained our household budget.
Our flat was cheap. The decor (if it could even be dignified with that description) was awful. We spent months renovating the place.
We converted the coal cellar into a kitchen, which freed up space for an additional bedroom.
The garden was planted and the barbecue installed.
All was good. And all for a down payment of a little more than GBP1,000 at the time.
A couple of years later an opportunity to go and work on an assignment in Hong Kong came up. It was a six to nine-month consultancy.
The decision to grab this opportunity was an easy one.
Our London flat was put on the market for rent, with a view that we could move back in on returning to the UK once the consultancy was finished.
Well, that was in 1980… 36 years ago… and we are still living in Hong Kong.
For more than 25 years our little London ground floor flat was successfully rented out. A couple of interim light renovation jobs were carried out.
But by the time we decided to sell the place the annual rent we received was 125% of the total purchase price we had paid in 1978!
The mortgage had long been paid off.
Looked at another way, one year’s rent represented an annual return of 1400% on our original equity down payment.
Eventually we sold the apartment after about 27 years of ownership. The selling price was almost 200 times the amount of initial down payment that we had made back in 1978.
That equates to a compound annual return of a little over 20% (compound!!!). And I’m ignoring the rental income.
I like those kinds of numbers.
It’s very tough to find stocks that give you those kinds of returns over such a long period.
So it was that short assignment in Nigeria back in 1977 provided us the capital and incentive to do something in an asset class that would later become a core area of my personal investment expertise.
It has proven to be a wonderful start to a profile of long term investment that has stood us in good stead.
Of course, it is impossible to guarantee that we would all have those kinds of returns on every real estate investment.
But there are several points to make…
First, real estate is one of the few investments that ordinary people can make using other people’s money.
Most people who buy stocks, bonds or other assets usually pay for them in full. The vast majority of folks do not use leveraged investment products or margin accounts (which allow you to leverage up your stock purchases for example).
But it’s a different story in property, and used wisely, leverage (i.e. debt) hugely amplifies your buying power and ultimately your wealth.
Second, real estate is ideally a long-term investment and should be viewed as such.
It’s an investment that should allow you to sleep well at night through the inevitable market cycles.
Yes, short-term value-add opportunities do exist and I’ve done that plenty myself… but your starting point should be to buy and hold… forever.
Third, real estate that has been held for a long term probably has little to no debt on it.
This is why, even if you’re in your 50’s buying investment property still makes sense.
A 20-year mortgage can be paid off by the time you’re 70… and then that rental income is just “free cash flow”. Because don’t for a second think the government will be there for you!
And at that stage in your life, you want inflation-adjusted cash flow more than capital appreciation. Real estate provides that.
I could go on… I’m just scratching the surface here, but let me summarise with this:
Real Estate is likely the largest investment you’ll ever make, and the difference between getting it right and wrong can easily be the difference between a comfortable retirement and one where you struggle to make ends meet.
You want to know the real secret?
It’s not that complicated!
You just need to follow some basic rules. It’s not hard, but I constantly see so many people getting it wrong!
P.S. I’ve been investing in real estate ever since that first flat in north London in the 1970’s… I’ve made more money in property than the salary I’ve received in my lifetime.
How? I followed the rules… And I’ve put them all into a special report (“Peter’s Rules for Buying Real Estate – Lessons From The Trenches”) which comes included with your subscription to my premium investment product, The Churchouse Letter.