What is the risk?

By Coert Coetzee

This is probably the one question most asked by investors. Everyone is initially very concerned about risk, but few do anything about managing it. How does one make sense of this?

It seems to me that we ask the question, but aren't really interested in the answer. Of course, not everyone is like this; I'd like to tell you about an interesting conversation that I had in Port Elizabeth recently, during the launch of my book, Let there be Light on Wealth Creation.

One of our members brought her book to me to sign, and started telling me about what a difficult time she had been through recently. Her husband had died six months before, and she - an ordinary housewife - had suddenly found herself sitting with 46 properties in trust that she had to manage. These were all properties that her husband had bought since joining TREOC three years before. A lot of you are now probably thinking, "What a wonderful problem to have!" But it can be a nightmare - have you ever considered what the shortfall on a portfolio of 46 properties might be? In this lady's case, it was R67,000 per month at the time of her husband's death. Her husband had been a successful architect and had no problem paying the shortfalls each month, but now that the breadwinner had passed away there was no way for her to generate this kind of cashflow.

Fortunately for this lady, her husband had not just been a good architect, but also a good businessman. A good businessman doesn't focus solely on making money, but also on the identification and management of risk. We often hear of big businessmen losing everything, which just goes to show that not all big businessmen are necessarily good businessmen. Someone who loses everything is either poorly informed or stupid. And if it's someone who has been to a TREOC seminar, then unfortunately it's the latter, because all TREOC members are well-informed.

Whatever the case, our lady's husband was a well-informed, wise TREOC client, because years ago he sat down with TREOC Risk Managers, analysed his risk and made provision for it. After his death his TREOC life insurance paid out and his spouse had two options. She could either pay off all the bonds with the insurance money, or she could make sure that she would always have enough for the shortfalls and then invest the rest. What a privilege it is to have options like this!

Fortunately our lady had attended the seminar with her husband at the time, and so she decided to follow the shortfall route. On the advice of TREOC Risk Managers, she used some of the extra money to purchase a few more townhouses. Fantastic!

This story so grabbed my attention that I phoned Neels Stander, Managing Director of TREOC Risk Managers, right away and asked that we take another look at my risk and make provision for it immediately. We determined that my current life insurance, which I took out three years ago, was wholly inadequate as a result of all the houses that I've bought in the interim. Neels immediately set the wheels in motion, and last month the insurance people came to do the routine medical check-up at my house.

Although I had been through the same process before with regard to the medical check-up, I was once again astounded at the efficiency and convenience of it. A medical doctor and sister made an appointment with me, and came to my house - almost like the doctors' house-calls in the old days. They brought along all sorts of fold-up apparatus, and in the comfort of my own study they did a full medical check-up, complete with Stress ECG and all. It was all over within 30 minutes. By the way, in case you're interested, I am still very healthy!

I'd just like to once again congratulate Neels and his team on their professional service and products. No wonder our lady from Port Elizabeth was so impressed!

Short-term Insurance is also Risk Management

A lot of people think that the TREOC Way is just about property. But that's wrong - in fact it's about financial freedom. Or to put it another way, it's about wealth creation. Of course, property is the integral ingredient making up the TREOC Way, but it certainly isn't the only ingredient for the achievement of financial freedom. The TREOC Way is a holistic method, where the direction of your thinking, your attitude, legal structures, personal finances, assets and investments are all synchronised for maximum financial empowerment.

We spoke about the importance of life insurance, but now I'd like to talk about one of the other personal finance aspects. It's one of the stepchildren in our financial lives, but this stepchild plays a very important role and has a tremendous influence on our goal of becoming fearless. The name of this stepchild is short-term insurance - this is the risk insurance that you take out on your moveable assets such as furniture, jewellery and cars.

The first step to wealth creation is having the correct trust structure, and the second step is transferring your assets to one of your trusts using the TREOC method. This is absolutely essential, and very easy. One of the reasons that TREOC investors benefit so greatly from the National Credit Act is that we keep everything in trusts, and of course trusts are exempt from the Act. One of my investors asked me at an investors' function recently how I knew when I developed the TREOC Way 10 years ago that it would be the ideal counterpart to the Credit Act. Well, I didn't know it at the time, because the Credit Act was not even under discussion yet; but what I do know is that my methods have already stood up to many tests and will stand up to many more in the future.

When I talk to members I sometimes hear that although they have the right trust structures, they are not utilising them fully. They buy their houses in trust, but their assets are still in their own names. If you are in this position, please don't wait another day. Make an appointment with our risk managers and get the asset transfer process underway. The next step is to restructure your short-term insurance into your trust. This can be done as soon as you have decided on a trust name - please note that it is not necessary to wait for the trust to be registered. Did you know that if your assets are in your trust and your short-term insurance is correctly structured, then the full insurance premium is deductible from taxable income? That's a big saving, which puts cashflow into your pocket. As long as the insurance is in your own name, the premium is not tax deductible.

This is not the only saving that you will make, because with our methods and products we can also reduce monthly premiums considerably in most cases. When you do the calculations and take into consideration the tax saving as well as the premium saving, you may find that you can afford the shortfall on an additional house. Another advantage of correctly structured short-term policies is that we even take out insurance to cover the excess in case of claims.

The big advantage of the TREOC Way is that you're getting your services from other property investors. Whether they're providing property services, legal services, financial services or insurance services, all my service providers are property investors like me, and so they understand our needs. Make contact with them by clicking on the TREOC Way link on our web site, under Services and then you select TREOC Risk Managers.

I'm a big proponent of not just putting structures in place, but also using them correctly; otherwise you end up with a Ferrari that is being pulled by donkeys. Every tax saving is especially important to me. Each little bit that I can save adds up to a huge amount later. You know how I feel about tax: give unto Caesar what is Caesar's, but not a cent more!

Happy House Hunting!