My POV: True INVESTING vs Just SPECULATING
I often hear investors who buy a property and rent it out for a loss every month tell others that this is a great deal because the value of their “investment” will go up X amount of dollars in X amount of years. The rent from the unit doesn’t even cover all the expenses that are needed to carry this unit. What I say to them is “How much money have you invested already and how much more are you planning to continue to put in every month?”
Think about it. If it is a good “investment”, the investor should be pocketing or earning a decent ROI (positive cash flow) on a monthly basis and not have to continue to put more money into the “investment”. In my experience, it’s never a good idea to have a negative cash flowing property in your portfolio because it’s taking money out of your pocket every month. In this case, your so-called “investment” requires you to continue to increase your investment amount and that means you’ll have to find the money somewhere to fill the gap. It really doesn’t make sense for me to put out the money to buy the property and I still have to put money in every month.
Real estate doesn’t always go up, so you want to make sure that you can hold on to the property even if the price goes down and ride the wave when it goes up. My philosophy of investing is that the “investment” has to pay me from DAY ONE. It has to produce a return from DAY ONE. That’s why I focus on buying positive cash flowing properties and it’s even better if I can get it below market value. Appreciation, to me, is just an added bonus if you know where to look and have done your homework properly!
What these investors are doing is really “speculating”. They buy and hope that the price will go up so that they can sell for a profit. I consider this type of “speculating” like gambling … gambling away your time, effort, and money. When the market turns on them, they could be wiped out completely because they can’t hold on to it. I’ve had clients in this scenario and boy oh boy, you do NOT want to end up losing your life’s savings because you think the market will only go up! However, if you are going to speculate in real estate, I urge you to do your due diligence thoroughly and understand that you are not truly investing. I wish those who enjoy speculating all the best in their investments!
If you would like to learn more about investing for cash flow, do not hesitate to contact me and I would love to help you get started in your real estate investing endeavour!