Make money when you buy!

There’s an old saying that you may have heard. It’s used particularly in relation to real-estate, but it can be applied to many forms of investment. It’s:

You make money when you buy, not sell.

One of my new readers asked me to explain what it means:

Could you expend on this statement a little or maybe you have some related blogs about this on your site? “…buy at the right price you make money when you BUY not when you sell.”

I don’t think I’ve ever written explicitly about this age-old investment adage, because it’s almost a tautologogy …

… after all, an investment is something that you should never need to sell!

To me, a true investment is something that generates ongoing income. So why would you ever sell it?

Any ‘asset’ that you buy, specifically to sell to (hopefully!) generate a profit, is in reality a SPECULATION, not a true investment.

Business makes these kinds of speculations all the time: buying trading stock (or labor) with the expectation [read: hope] of selling it at a sufficient price to generate a healthy profit.

Businesses take a calculated risk in doing so, hoping that the potential profits justify the risk, but …

90% of business owners are wrong!

They say that 9 out of 10 businesses fail within their first 5 to 10 years. They fail for lots of reasons, but one of the main ones is that these simply cannot make enough money when they sell due to competitive pressures, new products, outdated manufacturing techniques, low volumes, etc., etc.

As investors, we cannot afford to make the same mistake, otherwise we are just gamblers – gambling that: red will hit more times than black; we will roll a natural 7; AAPL stock will go long this month; Las Vegas house prices will continue to climb.

On the other hand, as true investors, we have to buy well, then hold on for the long run.

It is the income from our investments that makes us rich (by funding our dream lifestyle), not the amount that we could sell the investment for.

How about you? Are you an investor or gambler? Do you see the difference?

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10 thoughts on “Make money when you buy!

  1. you have me a little confused here. In past lessons, you indicated that one should not buy(or start) a business unless you intend tyo one day sell it.But here , you say ( a true investment is something that generates ongoing income. So why would you ever sell it?)

    So are you calling all businesses a gamble rather than an investment????

  2. @ Steve – yes!

    The difference is, a business EXISTS to take calculated gambles, and the payoff can be 50%+ compound growth rate per annum.

    BUT, you should take as much cashflow as you can spare from your business, while it is making profits, and put it into real (so-called passive) investments to:

    a) offset the risk of the business, and

    b) fund your retirement lifestyle.

    So: you sell the business (one day) and keep the investments (always).

  3. actually Adrian, that is the plan. I’ve started some businesses in The Phils, and plan to do just that. take the cash flow , as much as possible, and use it for other investments that will generate cash flow for the future .

  4. I am both.

    I am in the LV market.

    We consider ourselves investors in LV and not gamblers because the cash flow is only being used to buy more cash flowing properties…

    If the LV market was to get red hot again. I would not sell the cash flowing properties already on the books. I would invest our cash flow somewhere else.

    Interesting enough, our Baja investments were gambles but we can ride those out until the baby boomers begin to retire in earnest.

  5. @ Luis – “If the LV market was to get red hot again”

    Do you see anything wrong with this sentence? 😉

    If the cashflow is buying more properties (and, each property is providing positive cashflow), then you are investors.

    You have to decide, though, how you will retire on this portfolio ON THE ASSUMPTION THAT LV WILL NEVER GET ‘HOT’ AGAIN.

    If you have a realistic strategy, based upon ‘normal’ market forces, then you are indeed investors IMHO

  6. “If the cashflow is buying more properties (and, each property is providing positive cashflow), then you are investors”. Combined with additional money from living within our means we are well on our way into Phase II.

  7. I thought I would never sell, I was and AM a long long term investor and own millions in real estate however, after 8 years in the business i am thinking a little different, what if I could get MORE than the value of the property and then buy another property ( at a good price) and then do it all over again… So I am changing my tune, if I get an offer I can not refuse I am going to sell.. .what does an offer I can no refuse mean?… Im thinking 20% more than what I think the “true current value” of the property based, of course that tricky to determine but not impossible. So right now I’m actually speaking to buyers interested in buying my properties I have not get got an offer that is 20% above my perceived value but im going to see if I do and test out the theory If I do actually sell a property for 20% more than MY perceived value I will then buy another one at a good deal if I can find one. It did take me 3 years to find my first property so it can take some time to replace, but if I get 20% more than my perceived value im going to try. I think part of this real estate game is knowing WHEN to sell, im not convinced always holding “forever” is the best way, although I thought that when I started the business. Lots of factors do come into this decision not the lest of which is my young children who I would like to spend more time with than managing my properties. The good news is my 20% “value number” is about 2X more than I paid for the properties 7 years so.. So double my money in 7 years Ill take it !!
    That is what I mean when I say you make money when you buy… If day one you buy an asset for LESS than its worth you can make money… and it happens every day, think about the TV show “pawn stars” they buy stuff EVERY DAY for 50% of the “value” or they dont buy it… WHY do people sell for 50% less than the value… well there are all sorts of reasons personally I do NOT but im not a normal person most millionairs are not normal in that respect…I think most people do because they are lazy, or have a bad habit, or sometimes it can be a difficult situation and they need the money FAST. That same idea can happen in real estate, stocks ( think warren buffet he buys on a good deal), and all sorts of assets… Make money when you BUY – Buy at a great price ( below value) and then when you sell ( you will have to sell sometime you cant take it into your grave).. you will make more money.. My advice look at Quantity 100 of what ever you are going to “buy”, watch what those things sell for, track it it, take your time, after looking at 100 of something it starts to give you picture of the value and how much that assett is worth, it will help you to ID a good deal when you see it.

  8. @ jimbomillions – It’s only speculation if you purchase with the sole INTENT of selling at some arbitrary number e.g. “20% more than my perceived value” or “2X more than I paid for the properties 7 years ago”.

  9. I am just starting my journey to the concept of making money when you buy. Can I get more examples of what can be bought to use this concept? Where do I learn a strategy that I can start with next to nothing in cash and build up?

  10. Pingback: How to start with next to nothing in cash and build up from there?- 7million7years

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