When an investor purchases an income property, Jason Hartman teaches there are two component parts: the improvement, and the land. Essentially, the improvement encompasses everything the property is made of, the “sticks and bricks” as Jason likes to say. The land, of course, is what the property sits on. The property eventually breaks down and goes away, but the land will always be there.
Unless, of course, you work to restore the property. But this involves taking a look at cost of
improvement, and evaluating trends and risks to your income property. Here are the basics of trend evaluation.
Cost of Improvement
So, what happens when it's time to restore the property? What influences the cost of improvement? First, there's the cost to build it, and then the builder's profit. It's important to recognize that if the builder can't turn a profit, he won't build.
Another element which influences cost of improvement is environmentalism and building restrictions. We like to think of it this way: a developer is someone who wants to build a home in the woods or on the beach. An environmentalist is someone who already owns a home in the woods or on the beach.
Essentially, the environmental
movement increases the value of improved land because it makes it hard for people to build after you. The land is already titled and improved. Thi
s is a good thing because it increases the value of your income property.
History and the Global Economy
Something important to note is the global economy. Instead of listening to every headline on TV, sometimes it's a good idea to look at history and compare. Certain things have down periods, however, the past shows us we're closer to an up trend, and the present isn't quite as bad as we may believe.
Massive Consumption Trend
Jason Hartman likes to look at large trends rather than small ones. For instance, if copper, an element of an income property, goes down in price, it doesn't matter as much as one might think. It's not necessarily part of the bigger picture; it's not a large trend.
So what is a large trend? Massive consumption is. At this time, billions of consumers are on their way towards a more prosperous life. What does this mean? They're going to consume a lot.
evaluating every element of income property investment, including trends, it's possible to determine a risky investment. Be sure to look at each diversified property closely to decide if it's worth your time and money. (Top Image: Flickr | Images_of_Money)
The Young Wealth Team