A Simple Strategy for Long Term Wealth Creation
As an real estate investor interested in the long term wealth creation and not in speculative investment, I always consider the following when evaluating a property investment opportunity:
- How much return can I expect over the short term?
- How much return can I expect over the long term?
- What are the cash flow requirements I will need to take the investment from short term to long term?
- What is the expected cost of money over the short term, medium term and long term?
- How easily can I liquidate my investment?
- How quickly can the investment climate turn unfavorable?
In other words, how wide apart is the expected cost of money from the expected return on the property investment? Available cash flow (point 3), has a bearing on this. If the investment climate temporarily turns unfavorable, sufficient cash flow can bridge this until long term gains can be realized.
- How much financial gearing can I tolerate without creating unacceptable risk? By unacceptable risk I mean the following:
- A situation whereby should real estate investment conditions turn unfavorable, I will not be able to liquidate in time to realize the current profit.
- A situation where my short term cash flow needs are not provided for except in the most favorable circumstances. It is important that short term cash flow should never be risked, as this can force an investor to liquidate a real estate investment at an inappropriate time.
- A situation whereby should real estate investment conditions turn unfavorable, I will not be able to liquidate in time to realize the current profit.
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