The economy is changing — so is investing!
Investments that worked for your parents will NOT necessarily work for you.
I will never forget a lesson my father gave me. “Poojan, investing in real estate in some areas of our city is a fool-proof investment,” he said about thirty years ago.
“Why is that, Dad?” I asked.
“I’ve struggled with some investments, feeling regrets that I’ve overpaid for some properties,” he said.
“But, why fool-proof, Dad?”
”I’ve had regrets after buying properties paying high prices,” he paused for a few moments while he was getting a calendar to explain his lesson.
“I’ve gone home feeling I made a mistake,” he continued, “but time has been my best friend,” he said showing me the years on the calendar.
“Time?” I asked.
“Yes, time has always helped me erase my mistakes.”
He saw my face confused and continued, “Poojan, our city is growing so fast that there’s plenty of demand for land or property. Prices ONLY go up, no matter how high you buy, prices will ALWAYS go up — You’ve got to make a very stupid mistake to lose money!”
This is NOT true anymore!
Let me explain.
Capital gains was the investing that worked for my father. I also grew up with this understanding.
Example: You buy a property for $100,000 and sell it for $140,000. The $40,000 profit is considered “capital gains.”
Before the 2008 financial meltdown, the expectation for many investors was that property prices would go up.
But after the real estate market crashed, things changed. When prices fall (nobody can predict this) capital gains investors lose.
As our economy shifts, capital gains investing is now becoming a more unpredictable gamble.
People need to shift their investing strategy to cash flow.
Example: You purchase the same single-family house for $100,000 and instead of fixing it and selling, you rent it out for $1,500 per month.
Every month you collect rent and pay the expenses. If you bought the property at a good price and manage the property well, you should have a monthly profit, a positive cash flow.
Cash flow investors are not as concerned as capital gains investors at market fluctuations.
Things change. Trends change. Markets change. Investing strategies change!
Reference : Growth_Mindset
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