Investing in real estate used to be something of an unofficial national pastime. When the property market experienced year after year of double-digit growth in prices, people all across the country (and even across the world) were snatching up properties left and right, hoping to turn a quick profit. This made a lot of people rich…until the bubble popped, and millions of people lost everything in a matter of months. This includes many of the people who once stated that house flipping was a “sure bet”. As we now know, that was hardly the case at all.
Knowing how to properly invest in property requires you to first understand the nature of property as an investment. Bradley Sugars’ newest book, The Wealth Coach, breaks down assets into three types: high liquidity and low value, low liquidity and high value, and medium liquidity and medium value. Property solidly occupies the latter, despite the fact that some people treat it as the former two. Maximizing the value gained from property assets means that you need to understand the best way to treat it.
Create property capital- I am now not just buying, but developing and selling property, doing bigger deals. The time I spent learning is well worth it.
The first half of that equation concerns its value. The worth of property can change relatively quickly in good or bad times, but it is not prone to the extreme swings that stocks sometimes undergo. That is to say, the value of your house is unlikely to drop by 50% or double in value within the space of an hour. Conversely, the rate at which your property can change in value can still be significant over the period of a year or two, and some people have made a fortune buying and selling property within a relatively short time frame.
The second part to consider is the fact that property possesses a medium level of liquidity. Liquidity refers to an asset’s ability to be bought and sold quickly. Depending on a certain country’s rules and regulations, buying property can go relatively quickly or quite slowly. As of December 2015, selling a house took an average of 41 days in the United States. This is much slower than the near-instantaneous turnaround time for stocks, but far quicker than the ten months it takes to sell a business.
With this knowledge in hand, a lot of investors treat property as the happy medium between the three types of assets. It has a strong potential to gain in value while still remaining relatively stable overall in its worth, and the turnaround time for a sale is relatively reasonable. With that said, there are caveats to be aware of. Like stocks, property is very susceptible to the vicissitudes of market sentiment. But if your houses are losing value quickly, shedding those assets might take longer than you expect. Stocks can be sold instantly, but you may not be able to sell your property before it has lost a considerable degree of its value. A business offers great potential for you to add value to it while times are bad, but your ability to influence the price of your property is far more limited.
The key to investing wisely in property is to try to generate cash flow from it. A lot of people sit on property and wait for it to appreciate in value. While this is not necessarily wrong, they are completely responsible for paying for the mortgage and upkeep. Properties need not generate value just on paper – you can turn them into money makers by renting them out. A lot of wealthy people who own property don’t just sit on it; they rent them out and use the payments from their rent to cover their mortgage. In essence, they are having somebody else pay for their house!
The Money House is the key to obtaining the most value from your property investments. Market conditions and prices will always be the deciding factor, but by generating cash flow from your capital, you are entering a virtuous cycle that allows your assets to both sustain and feed into themselves. More cash flow means more capital, and more capital means more cash flow. Property is uniquely suited for this role, and many people looking to build their physical assets invest in property.