Keywords: Wealth for Life, Tony Melvin, Ed Chan, Interest Rate Rises
An excerpt from the book, How to Achieve Wealth for Life by Tony Melvin & Ed Chan
You have most likely heard of the theory of diversification, which is spreading your money over a broad range of investments so that if one or two don’t perform or lose money, the loss is manageable because you’ve spread your money around. Diversification is the answer to “How does the investor reduce risk?” it doesn’t make it safe, it simply makes it less risky.
Most investors are trying to reduce risk which presupposes that risk must exist. Making it safe doesn’t reduce risk, it removes it.
And because safety is a personal thing, the amount of safeness required is different from person to person. As you’ll discover, it’s you who determines the safety level of this strategy, not us. It’s you who decides how fast you want to go. To use an analogy of rock climbing, to feel absolutely safe you might want 3 or 4 safety ropes, in addition to the main rope. Our view is — use as many ropes as you need to feel safe. With W4L it provides such variations.
How can you buy an investment property and make it safe from day one? How do you factor in such things as economic ups and downs, bad tenants, interest rate rises or possibly losing your job? Most of these factors above are either ignored or explained “not to be a problem anymore.” Professionals selling investments will often provide the investor with statistics and graphs to show how such things as “no tenants” is very unlikely to occur because of the current economic environment. While such information is important to have (because more knowledge improves the safety factor) it doesn’t provide total peace of mind. Until now, no one has really provided the investor with a solution to these things.
We liken this to the weather. We know that in summer the sun shines and in winter it’s cold and it rains. We also know that the weather changes and storms occur. And storms can do damage to the unprepared. How does the investor weather the storm and survive such difficulties?
The step towards finding a solution is realising that these thing do happen, things can and do go wrong, the economy goes up and down; some tenants don’t pay and can be a real pain to get rid of. Despite being the best employee, you can still suddenly lose your job through no fault of your own. Interest rates do go up and down. Like all human beings on this planet, the investor can have a bad day, a bad week and even a bad year – these experiences are part and parcel of life!
So rather than hope they don’t happen or try to work out the possible risk of it happening and being happy with that risk, let’s take a different approach and make it safe!
We don’t like risk. We prefer that come hell or high water it will be okay and our families will be okay too.
And we create real wealth for life, safely.
The Player ensures they can weather the storm.
Summary
Interest rate rises affect those who have not planned their investing and don’t have a buffer in place. On the flip side, if you have equity or recently had an increase in property values then you should look at locking in your buffer to make it safe.
What is a buffer exactly? It’s a loan approved by your bank that gives you access to your equity if you need it. Line of credit type loans provide you with the ability to draw down on your equity. Using equity to buy toys (like boats and cars) should not be its first use. Equity should be used to either a) buy time by helping you fund your property portfolio during difficult times (instead of having to sell your properties) or b) help you buy more property.
This reiterates the principle explained in How to Achieve Wealth for Life, that it is the size of your assets that matter. The bigger your asset base, the better!
Click here to view Michael's books, DVDs and upcoming events
No comments:
Post a Comment