Total cost of ownership and how incentives always matter

We often hear these stories of people winning millions in lottery, or sports stars making unbelievable amounts of money only to go bankrupt a few years later. How does this happen – and how does it relate to you?

As consumers, we’re used to looking at the price tag of things – how much a car costs, for example. We then decide if we have enough money to buy it (not going into the discussion of credit here), and consider the “financial case closed”. But that’s not the total that you end up paying when you buy anything that has operational and maintenance costs, like that car.

A better way to look at the cost would be to include all those ongoing costs of ownership and then decide if you still can afford something, but as this kind of a calculation is arguably quite complex, most people just skip it and then wing it month to month. Some make it, some go over their skis and slowly (or quickly) descend into debt.

Even millionaires can go broke if they ignore this total cost of ownership: the initial price tag and what you pay after. When you start buying more expensive things, usually the ongoing costs start to dwarf the initial price tag of what you pay. Self-made millionaires tend to understand this, and I’ve noted that the richer the person is, the more aware they are of this mechanic. And vice versa…

The most expensive price tag is “free”

My best friend, who sadly passed away, had a saying: the most expensive price tag is always the one that says “free”. He was very good with money, and he was very aware of the scams of “free”. Getting something valuable “for free” basically always means that the true cost is hidden, and that you’re probably being taken advantage of in some obscure way. As the old saying goes: if you don’t know who the mark is, you’re the mark. That’s very likely your role in the game of “free”.

“Free” agents are incentivized to work against you

Think about it: you’re looking for a home, whether it’s rental or buying, doesn’t matter. You get a free (or very cheap) agent to help you find a place – but why would anyone work for you for free? Newsflash – they don’t.

They are paid a commission, which is calculated as a part of what you pay. This is fine, sort of, if you’re the one doing the price negotiation, because then you can fend for yourself. But what if you’re in a foreign country and the agent is also doing the price negotiation for you?

Now you’re in a situation where not only is there a conflict of interest, but the incentives of the negotiation parties are diametrically opposed to your own. You’re looking for the lowest total cost – what you end up paying in rent, and what the agent gets paid.

If the landlord and the agent are the only participants in the price negotiation, they both benefit from driving up your rent. They will present a (wildly) inflated price to you as fair, and you need to be the one telling them “no” – but then you’re negotiating against your own agent, who should have been working for you, right? It can quickly become a complete mess, especially if you’re in a new country under a lot of stress to just find some place fast…

These incentives can be fixed with the Sovereign Landing business model: one where you – the customer – are once again the king.

How we structure the incentives to work for you and only you

To achieve this healthy set of incentives, you need to know you’re paying the agent enough, and that the agent is not getting paid by the landlord. That’s the only situation where they can truly represent you and not work for someone else.

Finding this outside of Sovereign Landing might be difficult. A random outside agent can always take your money, only to then turn around and ask to also be paid by the landlord. Sovereign Landing has a clear value proposition to the landlords: we provide them with reliable tenants, and in turn demand that they really do their best to meet a certain quality level – to really serve you.

What we specifically don’t ask is that the landlords pay us, and we’re very transparent about this. Our demands are 100% about quality, not “half quality, half payment”. That would very quickly disintegrate into the “minimal quality, mostly payment” that you get with every other service. I’ve personally had enough of the twisted incentive structures of the daily rental platforms, and don’t want to recreate any of it. Sovereign Landing is better than that, and you can hold us to that promise!

This is the set of incentives that allows you to get the cheapest total cost of ownership for your experience of staying temporarily (or longer if you wish) in a foreign country – not for free, but for a fair and transparent price!