Today’s Video On Sunday has absolutely NOTHING to do with money, other than that it may help you win a few bets at the pub 😉

And, my American readers [I hope!] will appreciate learning a little about cricket …

… which is best explained, IMHO, by comparing it to that great American institution: baseball. In fact, cricket is just like baseball, except:

– There are only two ‘bases’: imagine home base being where the batsman (a cricket term for the guy hitting the ball with the bat) stands, and that ‘first base’ is shifted to sit on top of the pitcher’s mound – except that there is no mound, so the pitcher (in cricket terms: the bowler) has no height advantage.

– There are 11 players a side, but two batsmen are on the ground at the same time; one stands at ‘home base’ to hit the ball and the other stands at ‘first base’ near the where the bowler (aka pitcher) will be.

– There are only two innings per side, but each innings is over when ALL of the batsmen from each side is ‘out’ (actually, 10 from each side, because you need 2 on the ground at the same time).

If you can imagine those differences, let me walk you through the video which covers the 3 main aspects of the game:

Bowling

– The bowler cannot whip the ball (which is VERY hard, much like a baseball … perhaps a little harder) with his elbow, as he MUST bowl with a ‘straight arm action’. A little curious I know, but he gets speed by running as far/fast as he likes, until he reaches a line just behind ‘first base’ than releases the ball; the combination of the run and the fast (albeit strange-looking) straight-arm overhead throw produces the speed.

– The ball can be thrown directly at the batsman (within reason … you aren’t allowed to deliberately try and hit him!), but is usually bounced off the ground making it much more erratic and harder to hit.

– In fact, the red (or yellow) ball has a very pronounced seam effectively dividing the ball into two hemispheres, therefore a slower ‘spin bowler’ can be equally effective as a ‘fast bowler’ by deliberately imparting spin and/or aiming the ball at a spot on the ground that is rough or has cracks from the heat to make the ball ‘jump’ or ‘spin’ one way or another.

– The IDEAL outcome for the bowler is to get the batsman out, not by ‘striking him out’ but by using the cricket equivalent of hitting those three little sticks sitting right behind the batsman. Very quaint. It gets better! If you look carefully, balanced in little grooves on top of the stumps (i.e. those three little sticks) are two even smaller pieces of wood called ‘bails’, and the batsman is OUT if the bowler can hit the stumps with the ball AND the little sticks fall off. Cute 🙂

Watch the video until 1:30 and you’ll get the idea …

Fielding

– Of course, the other team is all on the field, carefully positioned to ensure this doesn’t happen. For example, if the batsman happens to hit the ball then they can get him out – just like in baseball – by catching the ball before it hits the ground.

– Because both bases – hence most of the action – happens right in the middle of the pitch (which is usually a large oval playing field), the batsman can hit the ball in ANY DIRECTION (there is NO ‘foul ball’ rule in the game of cricket), so it is just as critical in cricket to carefully place the fielders – but, in this case, all around the entire ground –  depending on the characteristics of the specific batsman (is he a left-hander? is he likely to accidentally ‘snick’ the ball or is he going to whack it a long way?)

– Remember that really hard ball? Well, the cricket fielders prefer to catch them without wearing gloves. Just watch the video until 3:00 minutes in, and you’ll see what I mean [AJC: if you really want to see a tough sport, if I get enough interest, I’ll tell you about Australian Rules Football in a future post!]

Batting

– Of course, the batsman are in there trying to make runs, just like in baseball; and, they do it by running from ‘home base’ to ‘first base’ and back again as many times as they can, before they are at risk of getting out.

– But, in cricket, a batsman can ONLY get out four ways:

1. By being ‘bowled out’ i.e. the ball hits the stumps and those little bails (remember them?) fall off,

2. Or by being bowled out on a technicality (much like a ‘technical knock out’ in boxing) where the umpire (aka referee) rules that the ball WOULD have hit the stumps EXCEPT that the batsman stuck his leg in the way (instead of his bat) to avoid that from happening. This is called ‘Leg Before Wicket’ … imaginative, huh? 🙂

3. By being caught out (just like in baseball), either by the fielders around the ground, or by the wicket-keeper, who is the cricket equivalent of baseball’s short-stop except he wears NO body of face protection. But, the wicket keeper does usually wear TWO over-sized gardening gloves (that don’t look anything like baseball mitts).

4. By being ‘run out’ which is where the batsman hits the ball and madly dashes for the ‘base’ (actually called a ‘wicket’) which is merely a line drawn on the ground a couple of feet in front of the stumps:

– If any part of his body or his bat (because, in cricket, the batsman always seem to carry their bat when they’re running) touches the ground between the line and the stumps BEFORE the opposing team can get the ball to knock those little bails [there they are again!] off the stumps, the he is IN (aka SAFE!)

– If the opposing team can throw (or touch) the ball to the stumps and get the bails off before the batsman reaches that ‘line drawn in the sand’ (literally!) then he is ‘run out’ i.e. OUT in any sport’s language! Oh, and touching the ball to the batsman or catching the ball and standing on the line means nothing in cricket, sorry 🙁

All of this means that the batsman can score in a few different ways:

– They can hit the ball (or bunt it, or miss it entirely if they like) and attempt to run between the wickets as many times as they like (i.e. until they feel that they would be at risk of the opposing team getting the ball to hit the stumps before they are ‘safe’).

– Batsmen can usually run back and forth between the wickets 1, 2, or 3 times … only very rarely will they get 4 runs in (usually because somebody has tried to throw the ball at the stumps, missed it, and the ball has started to run on towards the other side of the ground … ooops!).

– The bowler can throw the ball so badly (or make any number of ‘technical errors’) that the batsman has no real chance to hit it, so the team is automatically awarded one extra run (conveniently called an ‘extra’)

– But the best is if the batsman can hit the ball so hard that it bounces or rolls until it hits – or crosses over – a rope encircling the ground just inside the fence (hence, it’s name: ‘the boundary line’), as he is awarded 4 runs (nice!) … but, if he can hit the ball all the way over the boundary line without it touching the ground (or anybody else) first – the cricket equivalent of a ‘homer’ – he gets 6 runs (better!).

– Best of all, each batter stays in and keeps hitting the ball until he goes out (in one of the four ways mentioned above); so it is typical for even a bad batsman to score a few runs (eg 15+) – and, not uncommon for a GREAT batsman to score up to 50, 100, or (extremely rarely 200+) runs in each of the two innings!

– Remember, the team innings isn’t over until all 10 batsmen from the team go out, and the game isn’t over until both teams go out twice … two innings … no wonder a game routinely lasts 4 or 5 days with each teams scoring 150 to 450+ runs!

Oh, and because a 5 day ‘test match’ (as they are called) is way too exciting for the Average Joe (or, more likely, Bruce in Australia and Nigel in England), two new versions of the game are being played at the moment:

– The One Day Games, which have been reduced to a mere 8 hours of excitement, simply by having only one innings per side, which finishes when the 10 batsmen are out OR 50 overs (6 balls – or ‘pitches’ – constitute an ‘over’) which usually comes first, and

– The 20 Over Game (i.e. each side is limited to seeing how many runs they can score in only 20 x 6 balls/pitches), which is proving to be way too short and exciting at a mere 4 or 5 hours, so is in danger of being consigned to the ‘cricket trash can’.

Well, it’s nearly summer here in Australia, so if you don’t see a post for 4 or 5 days you know where to find me …. yawn … 😉

With this simple text message, I purchased a commercial property for $1.5 million (plus taxes and closing costs):

demo $75 and roofing $60 the rest $200 – $250 approx.

Good enough for me to close the deal!

Let me backtrack a little …

Over the past three or four weeks, I’ve been going through my numbers on developing a main road site into a high-rise condominium complex (60+ condo’s over 8 stories plus basement car-parking), but the project didn’t start that way:

It actually started as a buy-with-a-twist project that I favor so much (for good reason, I might add) …

…. the idea was to buy an unloved showroom/warehouse and rehab it into a bright, modern showroom with an excellent main-road frontage, then rent it out as a ‘buy/renovate/hold’ investment. It was only AFTER I made the decision to acquire it that we found out about the potential to rezone as multi-story.

So, let me walk you through the buy/renovate/hold scenario; you’ll be surprised [AJC: unless you’ve read this series of posts ] how LITTLE financial analysis that I do before acquiring 🙂

Step 1

The first step is to understand what your end product is worth: to that end, I undertook EXACTLY the kind of analysis that I talk about in this post. This tells me that a showroom in this area should rent for approx. $250 per square meter (or, $23.25 per square foot) for office/showrooms in the 800 square meter (8,600 square feet) size range. It also tells me that the ‘capitalization rate’ in this area/market – at the current time – is approx. 5.5% to 6%, which is (a) not much in absolute terms, and (b) not even much when compared to prevailing interest rates.

So, now I know two things:

(i) Buying and holding a ‘ready made’ investment (i.e. something in good condition, already leased to a good tenant) ain’t gonna do much for my future financial well-being, and

(ii) Creating a ‘ready made’ investment for some other sucker … I mean, investor … could be the way to go.

Step 2

I now need to work out how much the project will cost me; which is easy, thanks to that little text:

– Purchase Price: $1,500,000

– Taxes and Closing Costs: $200,000 (approx.)

– Rehab costs; this is where that text – which was from my builder [AJC: whom, I should mention, is a trusted friend … otherwise, I would have looked for written quotes before proceeding] – comes in handy because it lays out the major costs for me:

– Demolition works – at $75,000 actually a large expense because the roof is asbestos and has been fire damaged, so needs to be entirely (and, carefully!) removed and disposed of; also, the building was formerly squash courts, so there are remnants of internal brick walls that need to be removed

– New roof – once the old roof is gone, it appears to be (surprisingly) cheaper to put up the new roof than it was to demolish the old!

– Renovations – now that we have a ‘clean’ four walls and (new) roof, $200k to $250k should be enough to render the horrible old yellow-brick exterior, put in nice large aluminum showroom windows, new plasterboard interior walls, suspend a new ceiling and associated lighting, dab a little paint on the walls, and put in some flooring (and, a little kitchen and bathroom) and we have a ‘new’ building for not much money!

[AJC: commercial renovations are generally cheaper on a per-square-foot basis than residential because the quality of finishes is lesser and there are no – or, small – kitchens and bathrooms to fit out]

Step 3

Now, I get to redo the sums:

a) I have an ‘as new’ showroom in a prime position that cost me $2,085,000 all up,

b) It provides a ‘net lettable area’ of approx. 800 square meters at $250 per square meter … we’ll have some letting, management costs out of this, but the tenants pay ‘all outgoings’, so let’s say that this nets $200 psm x 800 sm = $160,000 per year

c) This provides me with a $160k / $2,085k = 7.7% return

Step 4

Now, a 7.7% return isn’t shabby (in the local market that we are talking about); but, I could now turn around and find one of those lazy investors that we spoke about in the beginning … one of those guys who is after a low-maintenance, fully-let property and who is willing to accept a paltry 5.5% – 6% return.

They should be willing to pay me $160k / 5.5% to 6% = $2.7 mill. to $2.9 mill. or a cool $600k+ profit for not a lot of work/time on my part …

So, if I decide not to build the condo’s, my backup plan is complete 😉

Let me know if this long-winded series on real-estate has been useful to you …