The difference between making money and losing money lies in these two things.
I have been investing – actively – now since 2004.
Twenty years of investing has taught me a few things, and I am here to share my insights to help others have the success that I have.
Most of my profits have come from property investing, however, some key principles – such as what I am sharing today – apply to all aspects of investing.
To kick us off though, let me share a story of one of my early property investments.
‘Journey’s End’ – the last Positive Cashflow House in NSW
Back when I started my property investing journey, 20 years ago, I wanted to buy positive-cashflow property. I’ve written about the principle of positive cashflow investing before.
At the time, it was hard to find these properties, and I had to search far and wide to get one that fitted. Eventually, I located the only one I could find in a small country town called Barraba.
Barraba is a town in the state of New South Wales, Australia, with a population of around 1500 people. It is 90km north of Tamworth, a regional centre and Australia’s ‘country music capital’. This whole region relies on farming and some mining, to sustain their economies. I really love these country towns.
This was a funky weatherboard house with a red tin roof. (I know, very cliche.) I later found when searching council documents that it had originally been named ‘Journey’s End’. Back when it was built, sometime in the early 1900s, people used to sometimes name their houses…
At the time I bought it, it was owned by two lovely older people, husband and wife. The wife was sadly losing her vision so her husband had put these ugly painted white rocks all around the garden so she could see her way easier. The house was also in relative disrepair; it needed a full sanding (rubbing all the wood back, removing and patching rot, etc), and a full paint.
As you might imagine, with the condition of the house, the remoteness of the town and the modifications the husband had made so his wife could more easily navigate, it was not aesthetically appealing to most buyers – and had sat on the market for some time.
My 2nd-ever investment property purchase, from Barraba NSW (after renovation)
But the numbers worked. It would be easy to tenant and it would bring in good rent that would cover all the expenses (mortgage interest, council rates, insurance, etc) plus deliver a profit every month.
So I bought it for $53,000. It was a good price back then, and it has gone up significantly in value since.
It was the 2nd house I ever bought.
I renovated it myself, tenanted it, then sold it 6 years later for $100,000. It had roughly doubled in value and I made about $50,000 excluding a little tax.
Fifty thousand dollars might not seem too much to you (or maybe you think it is) – but back then, $50K went a lot further, plus I sold another property for another $50K and together this cash was my launchpad to building the portfolio and money I have today.
So why did this house go up in value? And all my other investments since?
Let me share the two fundamentals behind optimising asset growth.
Fundamental One – Buy ‘Mispriced’ Assets
The first thing we need to consider when assessing any investment – whether it is a property, shares, crypto, or even alpacas ( – don’t buy alpacas – ), is whether this particular asset is being marketed at a price that is lower than it should be.
When we say an asset is considered ‘mispriced’ we usually mean it is priced lower (to our advantage as a buyer), and it usually means that the seller is more highly motivated to sell than other sellers, so they are willing to sell at a discount.
Usually other buyers are also currently being ‘put off’ by one or more characteristics of the asset, that they are considering is too much risk or hassle, but that you as an investor are able to see a solution to overcome.
Back to my house from Barraba.
On the downside – the house was in a remote area. It needed repairs. It was ugly. People didn’t want to live in it, and this was putting off owner-occupier buyers and investors alike.
On the upside (as I saw it) – with a few relatively-easy repairs it would be perfectly liveable. There was a rental shortage so it would be easy to tenant. It would be cashflow positive, and it was near-impossible to find houses so cheap.
In my mind, either there was something very wrong with the house that I could not see (which I doubted), or it was a great find.
The subsequent growth in value reflected that it was indeed under-priced when I bought it.
I foresaw that its price was only likely to go up as more investors wanted positive cashflow properties. I was right.
By buying at this low-market-price, I was able to lock in capital value right from the start.
I have ensured to apply this same rule when buying all my other assets.
And I’ve made really good money, as a result.
Fundamental Two – Value-Adding
This second principle is very important for every asset, because this will ensure additional above-market growth over the medium-to-long term.
Value-adding essentially means that the asset will bring greater value in the future than it does at the time that buy it.
By bringing more value, this addition of value will make it more valuable – hence also increasing its price if you sell.
So how does this apply to property, shares or even crypto?
Adding Value to Residential and Commercial Property
In residential and commercial property there are countless ways you can add value to a property.
Essentially, if you can make a residential property more desirable to the person living in it, you will increase its value. This especially applies if it sells to an owner-occupier.
You can increase its value for an investor if a renter will be prepared to pay more rent due to the improvements you have made.
Commercial property’s value resides in the commercial rent that the commercial tenant pays. If you can find a tenant who needs your property and has a good business that is doing really well, and they will pay a good rent that then makes your property more valuable. (There are a lot of nuances in commercial investing; these are lessons for another day.)
The overall lesson here, is that for whoever is going to use or buy your property if they can get more money for it (through rent or resale) then they will generally pay more for it.
Added value for shares and crypto
Shares and crypto are a bit different when it comes to value-adding…
I personally like property because you as the owner control the ability to value-add.
In shares and crypto you rely on the team managing the asset (e.g the directors and employees of the company, or the team behind the technology in the crypto) to drive the added-value instead.
If the team in control of the company do a good job, make more profit, and this results in higher distributions to shareholders, then more shareholders will want shares and the value will go up.
So the the key with shares (and crypto) is to find assets that will be able to provide more value in the future, and these will go up in price.
For crypto, the value might lie in its ability to be used for something (e.g. Bitcoin’s mooted store-of-value as ‘digital gold’) or ability to produce income through staking, etc. Whatever it is, if it will do a better job in the future than it does today, and more people will want it but the supply is limited, then its value (and sale price) will rise.
Bringing together these two Fundamentals
Ultimately, if you can find an asset, in whatever asset class you are most comfortable with, that is currently available at a lower price than you feel it is worth, and you can see a way to increase its value (or that its value will increase) then it may indeed deliver on its potential.
I encourage you, though, to first ask yourself – before you buy:
- Why do I feel this asset is worth more than it is currently priced for, to purchase?
- How is the market for this asset likely to change in the future?
- How can value be added to this asset, such that it will produce more money for its owner in the future than it does today?
- Why is it currently less desirable and what can be done (by myself or others) that will make it more desirable in the future?
If you get positive answers to all these questions, then hopefully you will see a great return on your investment, much like my house did for me, in rural Barraba NSW.
