Unfortunately, the movement of stock market investment into the ‘main stream’ of America has caused it to become less of an investment vehicle and more of a gambling casino. The primary purpose of the stock market is to provide companies with a means to raise capital for business investment by selling a partial ownership stake.
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In the world of real estate investing, this metaphor continues to hold true. When a property appreciates in value, this is equivalent to the “offense” for a sports team. Continuing with the sports analogy, this is the equivalent of a football team with a monster pass offense. It is extremely fun to watch, and can
The importance of this phenomenon is that future growth in value is very difficult to predict. By investing in a manner such that your costs are covered by income from the asset, you have the luxury of “waiting out the storm” during times of price volatility for values to increase. In addition to this, there
Price Stability: Real estate prices tend to be much less volatile than stocks. The relative lack of liquidity with real estate creates this phenomenon. Many financial advisors view this as a disadvantage, but since real estate markets operate with a smaller number of relatively large transactions, this results in less price volatility and a longer
The advantage of this strategy is that there will be minimal volatility, and a very significant upside if the valuation analysis is correct. The downside is that if the analysis is incorrect, you could be hit with a “double whammy” from losses on both sides of the transaction. In addition to this, there is a
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