What are you investing in?

What are you investing in?

Sometimes I wonder if people actually consider the value of an investment. There’s the obvious point, the process of making an investment to gain a specific result. The less understood point is the external value it creates. You may invest in your home because there is monetary value as well as practical use. People invest in many things but rarely is an investment made with the intention of creating loss of any sort, for the investor. The goal is to gain. Have you ever seen a teen with a brand new pair of expensive sneakers? The shoes generally lose rather than create monetary value. They create more personal satisfaction, social acceptance (and possibly keeping mom off their backs for destroying the shoes) than anything else (which are all value created outside of the initial investment of the shoes). If you watch these kids with the shoes in action, they don’t want to step in any puddles, mud or otherwise dirty surfaces, sometimes you may even see them walking funny as to not get any creases in the leather. There are some who won’t even wear them outside, especially in the nasty winter months. Instead they carry the shoes to protect them (that’s a long way from the original reason shoes were worn). You may also find some of these kids ensure the shoes remain in the best possible condition and may even clean the shoes off after wearing them and use some form of protection for the shoe until the next time they wear them. The point is, they attach a different type of value to the investment of the shoes to maintain its gains for as long as possible. There is no monetary, social and barely any practical value in raggedy shoes.

Houses, just like sneakers have value attached to them. If you invest in them and take care of them, they will continue to provide value for as long as possible. If you only consume the value, without replacing any, the investment no longer serves it’s purpose and loses its value. The sneakers, if worn through the mud, rain, gym class, etc., every day and are tossed in a pile once the day is over, they will become stained, scratched, etc. and eventually lose even it’s practical value. A house of disrepair, will lose its own value but can also bring down the value of other houses within the area. Eventually, everyone who owns property in that space can experience a decrease in the value of their investment. The quality of life for the people living within these homes can and likely will be decreased.

I pay attention to the investments made within our communities. Very often, the investment is made with very little concern for the value it creates within the community, nor what’s left in it’s wake once they pull their share of value out. Once you strip a land of it’s nutrients, it becomes barren. How do you expect it to begin producing again? People come into the community, purchase residential properties, maintain minimal standards of living so their cash flow is not interrupted and any profit is pulled out of the community.  Our communities are starved because more value is pulled out than returned. Returning the value requires more than minimal maintenance on the property. It requires working with other community stakeholders to help improve quality of life within the community in a way that EVERYONE benefits. If you’ve ever seen the way any healthy ecosystem works, you know it naturally takes and replenishes. There is balance.

As a landlord you have a responsibility to the tenant to provide safe and clean facilities. There are laws that dictate the minimal guidelines of acceptable housing or it could cost you money. I believe that what we do as investors, as landlords, is much bigger than that. We are making investments into our communities one unit, one tenant at a time. You cannot be a slumlord, yet call the result an investment. Whenever you make an investment, you are always looking for the greatest return. Usually this refers to money, in the case of the landlord, it comes in the form of an income. That is only a part of your return; the more valuable part of your return is the effect it has on the community and the people who live there. Renting a property with lead to a mother with young children or maintaining the property of disrepair because it’s enough to pass city inspection and earn an income is more damaging to the community as a whole and negates the impact of your investment. Any profit you make will be short lived because you didn’t properly manage your investment. It occurs with any type of investment you make, the difference is yours involves the lives of people. The only way your investment into that community can earn a higher return on investment is if you are enriching the lives of the people who live there. You will know that you have accomplished this when the people and the community they live in are measurably better off after you have made your investment than they were before you made the investment.

 

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