Some say property is a good investment. But why is it that some investors end up struggling just to sustain investment properties?
Investing in real estate is an effective way to build your personal wealth – at least, that’s what’s usually said. The truth of the matter is there are many property investors who seem to struggle more as they build their property portfolio. So what gives?
Asset Rich, Cash Poor
Property investing is a strange little game where ownership of property looks mighty good on paper. The value of your properties actually counts towards your net worth. Except, your property’s value on its own can’t really buy you anything outright. Perhaps, the closest thing to cash you can get from the equity of your property is using it as collateral to get a loan. The problem is, loans need to be paid back. And when you fail to deliver, you end up losing the property altogether.
So while properties can make you ‘look rich’, it’s not impossible to be cash poor at the same time.
Understanding Cash Flow
I remember the controversy Robert Kiyosaki sparked in his book “Rich Dad, Poor Dad” when he said property isn’t an asset. It seemed like blasphemy against the basic principles of finance. But really, Kiyosaki was merely stressing the point that owning property doesn’t make you financially secure automatically. After all, maintaining properties cost money. If you don’t have a concrete plan on how it could net you income, then money will be leaving your pocket to pay for the house.
Another property investor echoed the same sentiments. For those of you who have attended Cash Camp Intensive, you would have heard Rick Otton discuss about cash flow. In his course, he talks about different means so that your properties “can pay for themselves” and leave you extra money in your pocket rather than the other way around.
Unfortunately, not everyone thinks of cash flow and passive income. For many, buying the property is it. As a result, they end up forking a lot of cash just to pay the home loan, the maintenance, the bills etc. The more houses people buy, the more they need to work and cover so many expenses. So while they are “making money in real estate” because of improved net worth, they are actually not making any money at all. In fact, many investors end up losing more money.
So before investing in property, be sure to consider cash flow ideas, and not just the equity.
Robert Kiyosaki’s “Rich Dad, Poor Dad” book is available in Amazon
For more info on Rick Otton’s Cash Camp Intensive, you may visit the events page here: http://rickotton.co.uk/intensive/