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Most Property Investors are Gamblers
Most property investors are gamblers. Speculating that the value of a property will rise is like hoping your numbers in the lotto will come. Every week we fork out money for the lotto numbers dreaming that we will become millionaires one day hopefully. For some investors who have a negative cashflow they fork out money for years and sometimes decades waiting for that day when their property is worth significantly more than they paid for it so they can sell it, pay their debt off and cash the rest (after the capital gains tax bill). Hopefully, the cash difference is more than the amount they paid to hold their investment. I understand this strategy is popular but too much is left to chance. If I was planning for my retirement I would want a little more certainty that I’m going to get to where I want to be than sheer luck or relying (praying) on what happened in the past to repeat itself.
Astute investors rely less on speculation and more on certainties to achieve their financial goals. Imagine telling an investor to buy a business that will lose money every week for at least 10 years because it’s a good business and when they ask you why should I do that and your answer is because it should be worth more than you paid for it later on. The investor would look at you and laugh. Well, sadly that’s how most people buy investment properties today. It’s never really made sense to me.
The most effective way to invest in property, in my opinion, is to purchase an Investment that has a strong cashflow. The cashflow should be sufficient enough to assist in retiring debt. It should assist you in retiring personal debt first and then combining with your personal debt repayments to retire your investment debt as well. In most instances with the right Investment Property combined with a debt reduction structure and strategy should eliminate your personal and investment debt faster than you would normally retire your personal debt alone.
At this point you are probably saying “What???…Get into more debt and pay down more debt faster?” The answer is unequivocally – YES! The term is “borrowing your way out of debt”. You see If you purchase an Investment Property with a strong cashflow, even a positive cashflow with tax benefits you can use that cashflow to retire your personal debt. Once you have retired your personal debt you reinvest your personal debt repayments into retiring your investment debt. As you retire your investment debt your cashflow increases. As your cashflow increases you retire more investment debt and so on and so on until you have no more debt and just cashflow from your investment. In fact, the more Investment Properties you purchase like this the more cashflow you have the faster you eliminate your debt and the more passive income you have in the end.
This strategy has really no requirement to speculate on anything. Everything is usually known upfront. Purchase price, debt amount, repayment amount, Rent received, management expenses, interest rates, debt reducing rates etc. etc. You can measure everything and monitor the performance of your strategy against forecasts monthly if you like until all your debt is gone.
With negative cashflow strategies the more you invest the less cash you have and the less you can borrow to replicate. On the other hand with positive cashflow strategies the more you invest the more cash you have the more you can borrow to replicate.
Investing with strong cashflow requires a team with unique skills to help you achieve. First and foremost your team must be able to determine where you are right now financially, a snapshot of sorts. Then the team must be able to articulate your financial goals and determine the right strategy to achieve the outcome you’re looking for. Once that’s done it’s important to follow through and actually source the ideal product and structure that will do the job. Finally, your team should be consulted with regularly to determine if you are still on track and tweak the plan to ensure you hit your goal.
Investing in property should never be a gamble. It should always be a fully informed, easy to monitor strategy to achieving your goals.
If you would like to discuss your strategy to make sure you are fully informed, please contact us.
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