By Gerald Tay (guest contributor)
Being “upside down” is usually a negative term when applied to financial matters. But in my book there are two positions when it comes to wealth: right side up and broke, or upside down and rich. Personally, I prefer upside down. The best way to build and maintain wealth, — once considered the “least likely to succeed”– is by adopting unconventional strategies you never think and hear from ‘experts’ when building wealth.
Here are four upside-down (unconventional) strategies employed by rich successful investors – in upside-down order of course.
- Strategy #4: Focus on ONE New Emerging Location and Segment
- Strategy #3: Become a “Low-Cost King”
- Strategy #2: Build Your Property Portfolio on a Mountain of Cash
- Strategy #1: “Remodel” Your Thoughts to Grow Positive Wealth
Note: The upside-down strategies should be geared towards preparing yourself financially for a property downturn or an economic chaos. Stay wealthy and accumulate more wealth when that happens!
Strategy #4: Focus on ONE New Emerging Location and Segment
Understand Your Market and FOCUS – start with a single area of knowledge and avoid going all over the place like ants on a hot plate. You will find this knowledge builds upon itself quickly.
Once you have acquired knowledge, you will have a tremendous advantage and you’ll be able to determine where you should focus your investment efforts and what types of property you should be looking to invest in. Naturally you will have insight into how much you can pay for a property as well.
Students who become successful real estate investors take the time to learn their specific market and are handsomely rewarded for their efforts. One would be wise to follow the path of those who have previously succeeded, and learning about your specific market is a path that can quickly start paying dividends.
Your chances of survival are MUCH better if you focus on ONE new emerging location and ONE property segment at the right point on the S-Curve.
Strategy #3: Become a “Low-Cost King”
Save like a pauper in good times, spend like a king in bad times!
You’ll need to become “lean and mean” for the great economic shakeout. Whatever cash you do spend today should go to strategic assets such as continuing education, training and personal development.
Most investors and buyers are often over-leveraged when borrowing costs are low and times are good. They plan their expenses as if their income will always stay the same. And they have too many liabilities that produce nothing.
These will be the type of people slaughtered during an economic shakeout.
Living on a “shoe-string” budget during good times will help you accumulate more wealth in bad times:
- Identify the unnecessary expenses that drain your income dry. Cut those fixed costs and variable overheads that produces nothing for you (branded cars, bags and expensive vacations?)
- Dump all non-strategic assets such as an over-priced car. This will give you a huge leg ahead many others and create more cash to fight your strategic war ahead.
Strategy #2: Build Your Property Portfolio on a Mountain of Cash
Now, you may have heard some financial ‘experts’ babbling about the importance of why you must remain invested during a period of high inflation to protect your retirement nest egg. And how some property ‘experts’ in times of euphoria, urge you to buy now or regret later. They have no interest in making you rich, only themselves! During a downturn, deflation makes cash the most valuable asset in your possession.
The deflationary spiral will push down asset prices, drive up the cost of repaying debt and slaughter thousands of over-leveraged investors.
Most investors will unwittingly commit suicide. They’ll “tighten their belts” in a “race to the bottom.” But this is good news for you because you’ll be able to scoop up strategic assets at fire-sale prices!
That’s why you need as much cash on hand as possible to go “bargain-hunting” in a major property correction, instead of “irresistible-greed” in a hot market.
Things you should do NOW before any downturn:-
- It’s the best time to borrow money during a downturn! Never make major capital expenditures today that affects your borrowing capacity tomorrow, i.e. a upgrading of home and car, unpaid credit card dues, etc.
- Understand your property’s real profit margin and how to correctly identify the profit potential. You can use this knowledge to identify the true ‘value’ of your property.
- Identify if your property is funnelling money out of your pocket today and why it’s extremely important you dump it now.
- Take advantage of economic woes to acquire properties at steep discounts – start studying world history and economic trends.
- Education starts today, and not during a downturn! – Only invest money during chaos, and only invest in education during good times.
And if you’re doing one or more of the above, you’re much more likely to generate “positive wealth”, become rich…. and stay rich!
Strategy #1: “Remodel” Your Thoughts to Grow Positive Wealth
- Always Buy to Rent, Never Buy to Sell
‘In or Out’ isn’t an investment strategy – it’s gambling with time.
Popping in and out of markets trying to catch the wave at just the right moment rarely works for the vast majority of investors. Neither ‘get in’ nor ‘get out’ are investment strategies; they’re gambling on a moment in time.
- Invest in Yourself
This might be the single biggest obstacle on your path to riches. If you’re not investing in continuing education, training and personal development, you’re limiting your ability to make more money in the future. Your own earning power – rooted in your education and job skills – is the most valuable asset you’ll ever own, and it can’t be wiped out in a market crash.
- Follow Rules, Not Herds
Following the herd works when you shop for a product. A car or washing machine that’s performed well in the past is likely to excel in the future. The opposite is often true in finance. What’s hot today is likely to be cold tomorrow, and vice versa.
In fact, the herd tends to gather the most strength right before the investment it is chasing goes off a cliff.
These rules can be as simple as refusing to buy or sell in response to news reports, or making sure you follow your own rules no matter what the market is doing. Resisting the urge to follow the crowd can prevent you from committing the sin of buying high and selling low.
- Positive Cash flow as Strategic Victory, Not Capital Gains
Real estate, like business, is always about cash flow. If you want the property as a rental property, then you need to analyse the income minus the expenses then minus the debt service. I recommend that you have at least a $1,000 per unit per month positive cash flow after all expenses and debt service.
Now if the numbers are in the profit range that you are looking for and/or have the ROE (return on equity) that you want….make the offer!
- Eliminate Negativity
Many people self-limit. They get in their own way sabotaging potential success BEFORE they’ve even tried. It’s important to realize that in everything we do, there’s always a chance that we’ll fail. Facing that chance, and embracing it, is not only courageous – it also gives us a fuller, more rewarding life.
A Final Note about Wealth
Personally, I believe even on the road to wealth, it’s important to have the right mind-set and realize you’re rich already – with family, friends, health, freedom and appreciation for what you have already and the gifts that are yet to come.
By guest contributor Gerald Tay, CEO of CREI Academy Group, and a professional real estate investor whose real estate portfolio is now worth over $8 million and generates a 6-figure sum in rental income annually. He exposes widely-held property investment myths that are highly ineffective in creating wealth and prevent a comfortable retirement for the ordinary investor.