Recently, I was going through my financial statements and realized that in 2011, I incurred expenses of more than $1 million dollars in cash within 11 months! Now, you must be wondering whether I had been jet-setting around the world, purchased a sparkling new Lamborghini, or bought an exotic holiday home. No, no, no, I did none of these! I spent the money on another 3 new investment properties to expand my property portfolio instead.
Am I crazy? Well, I didn’t regret my decision as all the 3 properties have appreciated in value since with a combined value in excess of $2.85 million. What’s more, the additional properties have been generating good rental yields for me since 2011. Would you call anyone crazy if he or she spends a million today for an asset that brings you cash flow and could increase significantly in value in the future? You probably would invest every cent that you have on that asset, wouldn’t you? However, no one has a crystal ball to tell if a property would rise in value or would fetch good rental returns in the future. The truth is that many people get burnt in buying investment properties. Really, most people don’t make it in real estate investing. They don’t succeed in making money out of their properties as they are not doing the things that should be done, and the reason is they don’t know what should be done in the first place!
Sadly, the things that people don’t know that they don’t know are costing them dearly in property investing. Many think that there is only one direction the price of a property can go – UP. How wrong can they be! My goal in investing in any property is for immediate cash flow gain, not for potential future capital gain. Making money out of capital appreciation has never been my primary goal for real estate investing because I don’t speculate on properties.
So, should I be worried should the property market crash one day? Painful as it is, I wouldn't be overly worried even if the total value of my properties falls by 50%, though such a scenario is highly unlikely. Again, am I crazy? Of course not! You see, my properties are either fully paid or have high equity values. For those of my properties that are yet to be fully paid, the outstanding mortgage loans are less than 30% of their market values. In other words, I’m not highly leveraged and am prepared to hold on to all my properties for the long term.
Anyone can make money out of properties in boom times, but what about during downturns? Can you see how important financial literacy is in order to be a successful property investor? Hence, you must equip yourself with good property investment knowledge before you even start. The best way is to read lots of books relating to real estate investing.
Even after reading numerous books on real estate investing, I will continue to lay hands on any good property investment books made available. That’s how I gain my real estate investing knowledge. Putting the acquired knowledge into practice polishes my investing skills over time. Many good real estate investing books are written by authors who are practitioners themselves. The authors may well have made expensive mistakes, but they have also moved on to become successful property investors. We can surely learn from their experiences and strategies to avoid making expensive mistakes ourselves!
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