Appreciation will leave you Bankrupt!

 

  Definition of Speculator: One who attempts to anticipate price changes. A person who is willing to take large risks and sacrifice the safety of principal in return for potentially large gains.  

Although Appreciation is a significant part of real estate, it should never be the primary reason you purchase a property.

Between 2003-2007, I would receive calls weekly that went something like this:

I am looking for properties in _____, ______, or _____ areas that I can purchase, “do minor work to”, and refinance (the refinance was to pull equity out to put down on another property that they were going to do the same thing with). After a brief conversation and some very pointed questions to the “Speculator”, they would then go on to say…”I’m going to Hold the property for a few years until I can sell it.”

To add insult to injury, the majority of these “Speculators” calling themselves “Investors” weren’t planning on getting enough in monthly rent to cover the mortgage. Their only exit strategy was to wait until the property went up in value. These same Speculators lost everything when the market crashed!

Sustainable Real Estate Investing Requires The Right Mindset

Think: Yearly Return on Investment – Not Appreciation:

Every rental property that you purchase should be purchased based on your Return on Investment. If you want to purchase properties in more desirable areas in order to increase your chances of Appreciation, that is a great idea, however, appreciation cannot be accurately calculated or predicted. Therefore, it should NEVER be the only reason you buy.

Appreciation is a bonus!

If you view Appreciation as such, it does not matter if your property that once appraised for $100,000 is only worth $30,000 now. Your Yearly Return on Investment has not changed. Of course, you may not be able to sell it right now, but neither can the Speculator that was counting on the property to Appreciate. The difference is: You don’t have to sell…you are still receiving a return on your investment every month and year. On the other hand, the Speculator is in a hole every month until the property appreciates enough to sell.

Thinking Return on Investment - Not Appreciation would have kept thousands of Real Estate portfolios profitable when the market crashed and will keep your portfolio profitable for years to come.

If you are counting on Appreciation as your only means of making money in real estate, you will end up knee high in debt or dead broke. Be an Investor! Speculating is VERY High Risk and not part of a Healthy Investment Strategy.