Dealing with my mother’s financial affairs has provided some sobering lessonsby Andy Davis / May 25, 2011 / Leave a comment
Published in June 2011 issue of Prospect Magazine
For most of the past year, I’ve been restoring a holiday cottage in the West Country that belongs to my mother. It’s pretty much finished now and, although I say so myself, it’s looking better than at any time I can recall since she bought it in the late 1970s.
The refurbishment began shortly after my mother moved into residential care. Our family’s plan was to return the cottage to a lettable condition and so create an additional source of income for our mother to help pay the bills for the care home.
It’s taken a year for two reasons. First, renovating a property that is 120 miles from where you live is slow and complicated. Second, it was in a bad condition, having been largely unmaintained as Mum’s grip on her affairs slowly loosened.
We’re almost there and by the summer it will be contributing to her outgoings rather than consuming cash. My relief is huge. But from an investment perspective, managing the refurbishment—and in the process discovering the financial realities facing our mother—has been an experience rich in lessons, some of them extremely sobering.
The first insight was the most obvious. If you don’t maintain investment in any asset, its condition deteriorates until its ability to produce income disappears and its capital value dwindles. Discovering how hard and expensive it is to reverse this situation was a graphic illustration of something I had until then only appreciated in the abstract: if a company’s capital expenditure isn’t equal to or greater than the cost of depreciation on its assets, it is going backwards. If that continues for long, you’re in trouble. When I now look at a set of accounts, I pay much more attention to this than before.