Like many true investors, you are looking to buy and hold your investment property for the long term. You want as much cash flow as you can get and sustain for a long period of time. You do your diligence, you analyze the numbers and of course the condition of the property itself and when you believe you’ve got a great investment you make the purchase.
Then the unforeseen happens!
With your monthly cash flow coming in and your equity position growing, you are pleased as punch and your investing goals are being accomplished. Then after a couple of years you notice property values have stalled out. The property prices are no longer increasing or perhaps at a very low pace. Wow, that puts a wrinkle in your investing objective. Your objective of building up your portfolio’s value stalls out because values have stalled out.
These are conversations I hear about every day. Hey, unless you have learned from previous people’s mistakes, these things can happen to anyone. I know it has happened to me a number of years back which is why I am able to share this with you coming from a position of strength.
Investments best poised to maintain equity growth
Undervalued properties within appreciating markets maintain equity growth year after year. While most people are busy analyzing Pro-formas, the seasoned investors are busy (First) looking for sustainable investing markets. We all know the critical aspect of real estate investing is to insure you have solid cash flow.
The seasoned investor knows that the almost 90% of millionaires who have created their wealth in real estate did not create that wealth with just cash flow. It is the wealth building principle of appreciation that generates the lion’s share of the wealth.
What is an undervalued market?
Perhaps the largest “AH HA” moment I ever see on the faces of people is when I share this simple little equation. Are your ready for it. Median income needs to be able to afford the median home price. Sounds simple enough doesn’t it? Yet most people totally overlook this simple little piece of diligence which helps to determine the viability of the property values in the area to continue to increase.
Let’s break it down. Assume the city you want to buy a property in has a median income of $60,000. Then 33.3 % or simply 1/3 or $20,000 per year for total household expense is considered to be affordable. These affordable markets are best poised for sustainable appreciation.
But wait there is more!
Undervalued Emerging Markets
Yes, there are always new and emerging markets that are becoming strong economically and these undervalued markets with ability to grow offer you even better appreciation potential.
When an emerging market has strong job growth, population growth with plenty of job diversity this market is poised to not only give you strong and sustainable cash flow but also strong and sustainable appreciation and the 2 wealth building principles combined is where wealth is created.