Skip to main content

The power of capital

 Trail riding early this morning, a combination of solitude, the wife is away, and jet lag, Asia for a week takes it out of you, meaning that I was at our local stable to take Artur.   Aside from two grooms, I was the only one about.  Arthur is my wife's horse.    

There is a great circuit around where we live, for riders, and before you ask riders are far more considerate than ramblers.   About three miles from our house a developer has built, because it's almost finished now, a small hamlet of apartments.   The result is very pleasing and affordable.   Several of our staff were considering buying or renting there.  First owners/tenants will take possession before September.   I think I counted about 24 apartments in all.   The developer broke ground 18 months ago.

On the other side of our property, a couple acquired an old farmhouse about five years ago.  I had a break there for 20 minutes, to give Arthur a break, and me a cup of coffee.    The old farmhouse needed a brand new roof, but the owners have decided to do it themselves.   Let's just say that the end result is unacceptable since it fails at its job!  The couple poured their savings into that place, and a lot of hard work, and yet after five years they have little to show for it.   The roofing job should have been contracted out, a professional outfit would have taken 10 days to get it done right.   Five years is too long, especially since it needs to be redone.   

I get the intention, of building without debt, but in this case, the cost of sunk capital for five years and the cost of all the material is huge.   Let's assume a 20,000 acquisition cost, 5,000 a year for five years in building supplies, and an interest rate of 6%.   Had the couple invested the money they would have 55,000 today.   Is this farmhouse worth 55k today?   I doubt it, probably around 20k.   Too much material has been wasted or has deteriorated.   

As I ride away, I consider the choices people make.  During my week in Asia, I met several small business owners, mostly from mainland China.   The drive these people have/had to build their business, but also how ruthless most of them have been is impressive.  All of them had "sold" their businesses to new owners.  When the price was right, they pulled the trigger.   Leaving 30 years of effort behind, because they made a dispassionate calculation.   This farmhouse is the exact opposite.   A weekend dream, that should have remained a dream, has probably turned into a nightmare. 

Well at least Arthur enjoyed our travel today.    

Comments

Post a Comment

Popular posts from this blog

Ok so I lied...a little (revised)

When we began looking at farming in 2013/14 as something we both wanted to do as a "second career" we invested time and money to understand what sector of farming was profitable.  A few things emerged, First, high-quality, source-proven, organic farm products consistently have much higher profit margins.  Secondly, transformation accounted for nearly 80% of total profits, and production and distribution accounted for 20% of profits: Farmers and retailers have low profit margins and the middle bits make all the money. A profitable farm operation needs to be involved in the transformation of its produce.  The low-hanging fruits: cheese and butter.  Milk, generates a profit margin of 5% to 8%, depending on milk quality.  Transformed into cheese and butter, and the profit margin rises to 40% (Taking into account all costs).  Second:  20% of a steer carcass is ground beef quality.  The price is low, because (a) a high percentage of the carcass, and (b) ground beef requires process
Post a Comment
Read more

Spray painting Taylor Swift G650 aircraft (updated)

 First, a bit of paint will not harm anyone.  These climate activities are going to learn two things in the next few days:  (1) Trespassing at an airport is a felony almost anywhere in the world.  That means criminal prosecution.   (2) removing paint from an aircraft is expensive.   So these climate activists are about to find out the reach of the British criminal system and it will not be pleasant, the UK has very strict laws about that, I would be surprised if cleaning the aircraft of all the paint will cost less than $100,000.     I am sure that when they planned (premeditation) this little show they had a very valid logic to doing this.  Tonight, they are probably realizing the depth of their troubles.   I understand that in the UK it's a minimum one-year jail sentence.    Also, good luck travelling with a criminal trespass charge against you.  I am relatively certain that the airline industry will slap them with no-fly status. Update;  It seems that what they threw on the airc
Post a Comment
Read more

21st century milk parlour

When we first looked at building our farm in 2018, we made a few money-saving decisions, the most important is that we purchased our milk herd from a retiring farmer and we also purchased his milking parlour equipment.  It was the right decision at the time.  The equipment dates from around 2004/05 and was perfectly serviceable, our installers replaced some tubing but otherwise, the milking parlour was in good shape.  It is a mature technology. Now, we are building a brand new milk parlour because our milking cows are moving from the old farm to the new farm.  So we are looking at brand new equipment this time because, after 20 years of daily service, the old cattle parlour's systems need to be replaced.  Fear not it will not be destroyed instead good chunks will end up on Facebook's marketplace and be sold to other farmers for spare parts or expansion of their current systems. All our cattle are chipped, nothing unusual there, we have sensors throughout the farm, and our milki
Post a Comment
Read more