I heard an advertisement on the radio recently for some resort property one could serve as an "alternative investment idea," calling it such because all properties were either adjacent to or overlooking a very popular area lake.
Undeveloped, was the description, with "a tremendous potential upside.
" Please.
Now that I have a few initial tastes as to what it takes to be a successful businessperson, the above statement sounds really hollow.
But wait one moment: not too long ago, I would have found advice like this to be very attractive.
What changed? Well, I did, that's what! Here's a question which used to seem purely hypothetical: if you finance a property which eventually is valued at less than the loan amount, what do you do? Well, if you played it smart on the purchase, the answer would be absolutely nothing.
You would continue to make money just like you had before.
In the example of the resort property, I had no opportunity to make money on my "investment" until I sold it, and only then when that "potential upside" was realized.
Until then, I might have built a house on it, and maybe occasionally enjoyed my lake house.
But if it's not making me any money, it's not an investment.
If instead, I had the ability to buy 50 of those units, formed a corporation to build and maintain the necessary facilities, and charged rent to occupants at a rate higher than whatever mortgage payment I had obligated myself to, this would become a real asset.
If the property value goes down below the loan amount, I still have the ability to charge the rent, pay the mortgage and business expenses with funds left over.
The property would likely never be worth less than zero, so if I need to hold the property until the mortgage balance is paid off, I simply do that and collect the proceeds from the sale.
My aggregate profit would be the property sale and the net business proceeds, minus, of course, the amount I bought for the property initially.
My brain is simple enough that I need pretty simple theories that work, and the following is one of them: An asset is something which puts money in your pocket, and a liability is something which takes money out of your pocket.
I am not yet extraordinarily rich, but I am financially free, because I applied this principle and made certain that the online business I associated with applied this principle as well.
It is an alternative investment idea which ought to be mainlined as soon as possible.
It would certainly show that more of us are becoming financially literate.