basic english said that the risk of property price dropping 20% is big, therefore it may not make sense to start real estate investment. Here is my thought on this:


I fully recognize the risk. The 20% drop is normal in US history. In places like LA and NYC, it dropped that much in almost every down turn. Is that a reason you don't want to start investing in real estate? No. Because as investor, the chief goal for success is to turn your property into an Income machine, capital gain is great. But it's only icing on the cake, should not be your primary goal to seek.

For example, you try to find properties that are already down 20% from the market. You can find them in auction or builder's fire-sale event, or from desparate sellers. This 20% discount would provide you some safety net. Also, you need to calculate cash flow, ensuring that it's even. Then you hold for a long time to turn it into a Income machine. Capital gain is not your goal, income is. If inflation picks up, salary will pick up, then rent will pick up, income may come faster. Regardless, your mortgage balance will go down and rental income will go up. Over 8 years, the house will slowly change itself into an income machine. If you think 8 year is too long, then forget it, you don't have the quality to play real estate in its essense: Income. Nothing is free in life, this 8 year is your price to pay. Luckily, you don't have to pay a lot of your own money. Most cash flow are financied by banks and by your tenant workers. Don't you think it's not a worthwhile 8 years?

As a long term real estate investor, let me emphasize, the mindset is not to flip them for pure capital gain. Rather, we must understand that the real power of real property investment is its lagging power of generating income, month after month, it could become so huge that you can completely retire on this income. For example, an old lady is now relying on 3 of her townhouses in Manhattan. She is generating about $50000 income per month from rent alone. 25 years ago, when she was middle aged, she accumulated them one by one in a span of 7 years. The townhouses were about 1/10 as much as today, but was considered "expensive" according to the income standard at that time. She did it any way.

This is the income goal you are looking for. However, most people see a house as a pure tradable instrument like a stock or bond, but forget that a house can generate inflation adjustable income, which double, triple or even quadraple in a span of 20 years. If an investor can free him/herself of the "capital gain" mindset, then he can start to see what I am talking about.

Enought said.