As I took some time out to enjoy a drink at a café on the Port Douglas Marina Mirage I couldn’t help but think about the history surrounding this famous Marina and the man behind it. It certainly is a beautiful spot and I believe Christopher Skase was a visionary for creating the Marina and for putting Port Douglas on the international tourist map.
Whilst I do not agree with many of the things that Skase did in his life, we can all learn a very important lesson from him. That lesson is to manage your Cash Flow!!
Many people could only ever dream of the wealth that Skase enjoyed in his prime. Skase had lots of assets and lots of money but overcapitalisation and a lack of cash flow ultimately resulted in him losing everything.
It is so easy when you are on a mission to create wealth to get caught up in the moment and perhaps purchase a property before really understanding the true cash flow implications of that property in the long term. And if you do not understand the cash flow of a property then how can you be certain that you can afford to hold that property long enough to really benefit from the long term capital growth? I see so many people chasing the next boom suburb and ending up buying properties they can’t afford to keep on the assumption that the property they have purchased will substantially increase in value over the next 12 months at which time they can sell it and make a quick profit. The problems occur when their capital growth expectations are incorrect and all they are left with is a property that is draining their wallet every week as a big financial burden.
It is a huge reminder that the most important thing as a property investor is to make sure you understand your cash flow and the cash flow of every property in your portfolio and every property you are considering adding to your portfolio. You need to know that you can afford to hold the property forever (even if you do not intend to own the property forever) so that you are never in a position where you will be forced to sell due to cash flow problems. When ensuring that you have the cash flow to hold a property forever, consider all the risks that could potentially affect your cash flow eg. The inevitable rise in interest rates, loss of job, vacancy of the property and ensure you have managed these risks as much as possible and allowed for them in your cash flow forecasts. If you only purchase properties you can afford to hold forever and adequately protect yourself against risks that could impact your cashflow then you will never be affected by a fall in property values or by any economic situation because you will never be forced to sell at the wrong time in the cycle.
The message I want to leave you with…
Understand your cash flow and how each property will affect your cash flow. Only buy a property that you can afford to hold forever!
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At the tender age of 18, Marissa Schulze already possessed a financial understanding well beyond her years. She saved up her first deposit while still living at home with her parents and bought her first property. Now, 11 years later, her portfolio of 16 properties brings her $3,710 in rent each week; has amassed equity of more than $1.5m. She now runs her own mortgage broker firm in Adelaide, along with her husband and, still at just 30 years of age, she is only getting started.
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