How Alligator property and bad timing can kill your fortune (ZT)

How Alligator property and bad timing can kill your fortune
来源: miat42 于 07-02-17 09:12:30

Everybody seems to understand the benefit of using leverage to make money in the real estate market. However, since the market has entered into a new period, e.g., a slow drifting, or in some regions, a downward trending market. Then, many investors may face new risks that they seldom thought of in the boom years:

1) Alligator property risk: An Alligator property is a property that's gonna bite you and possibly eat you alive. Why so? In simple language, negative cash flow may slowly drain your money away before you can hold onto the next boom cycle. There are big alligator and small alligators. Of course, everybody understand that they should not buy a property with negative cash flow. But many people are not aware of the risks that may accumulate to cause a big damage to you from multiple small alligators, each draining you hundreds of dollars a month, accumulating to a big cash outflow. Alligator problem is not obvious in a rising market because the prospect of long term holding is not necessary in that cycle. As long as the investor can sell with a high margin, small alligator bite won't show as a big loss.

2) Timing risk. Now everything is pointing toward a new cycle, a slow, drifting, and potential down trending market for the next couple of years. In this timing, holding multiple small alligator properties can be a pretty good challenge. This new period is in fact the most critical period to influence the final success of a investment plan. Suppose a person already have hold multiple investment properties. I think the focus now is to manage the cash flow and potential risks under the condition of a stagnating market for 5 years.

Historically, many previously successful investors didn't make it through the down cycle. Even Donald Trump was pushed to the edge of bankruptcy during the 90s. Debt can be your friends. It can also be your enemy.