How much “value” decrease can stocks handle and still produce positive cash flow?

The short answer, they can’t. Sad, but true. That’s why I buy discounted property all over the United States to avoid this unfortunate reality.

I’m curious to know how many of your stock brokers or account managers have told you that you made a “gain” of 5% after you experienced a  “loss” of 10% and said that you have nothing to worry about and that this was good?

Many of you most likely.

Unfortunately, when stocks crash, principal is often lost.

When principal is lost you are officially in the hole or negative in your investment.

The only way for you to be positive again is if the stock recovers up to the principal base then beyond. If you really want to get technical then you’ll have to factor in the loss of any previous growth too.

Let’s say you have $100 worth of stock and it fell to $75 in value; it would actually need to rebound a minimum of 25% just to get you back to your original $100 bucks or break even point.

It can sure be misleading when your broker tells you that your account has gone up 5% since the last time it fell.

You better make sure you determine where your starting place was and take into account principle losses.

Though it sure feels nice hearing you gained 5%, you would still be down 5% if you originally lost 10%.

Real Estate is a different story.

On the other hand, I can buy a house for 100k with 20k down.

Then mortgage the property for $500 a month payment. I can then rent that house for $750-$900 and make positive cash flow.

Even if the market value of the house goes down to 90k, I’m still clearing my expenses and remaining positive and growing.

Unlike stocks where growth stops or reverses during a market hiccup, real estate is more stable in providing ongoing cash flow to weather the storms of the market no matter if the “value” goes up or down.

Many people fret when property values fluctuate but in my book it doesn’t matter because my income is greater than my expenses every month and the market value of the property won’t affect that.

This is a huge comfort and relief to real estate investors because the principle/capital they put into the asset is typically 20-40% for the total value at purchase.

This means the market value of the house would have to literally flat-line for it to start eating away at your initial money down or principle.

Better yet, buy some quality discounted property in the best markets and your bank account will be thanking you for years to come.

If you purchase homes below the market value in the first place then you have an added hedge or cushion for market fluctuations and it also helps with maintaining your cash flow each month like I mentioned above.

You could say investing this way is recession proof because you are still making a profit.

 

But, you might be thinking to yourself,”How can I buy these discounted properties? I don’t know how to analyze a market or research a property etc…and what about financing?”.

Well to get your feet wet here is a little video about market cycles and what we are currently in right now!

If there are some stock junkies reading this you may be interested in this website InvestmentU.com about the stock market.

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Buy Discounted Property All Over The USA By Joe Nielsen