Creating wealth through property

Buckminster Fuller “wealth is a person’s ability to survive so many number of days forward . . .”
By this he meant one’s ability to maintain their lifestyle after their main source of income has been removed.
Following this line of thinking, I am going to take an unusual route in proving that some real estate, especially an expensive home, could in the end prove to be a liability than an asset.
An asset is that which adds money into your pocket and a liability is something that takes money from your pocket.
The new trend in Zimbabwe is once a person comes into money they rush to purchase liabilities, and by this, I do not mean just the cars but also the dream homes before they can afford it.
Let us say, for instance, one purchases a house in an upmarket area, they will need to get upmarket furnishing, upmarket cars and pay upmarket rates and bills while having to also maintain the property according to the upmarket standards.
To do all this, one will have to continue paying out money way after purchasing the property and when the time for valuing the property comes, we do not consider the high bills and rates you paid to maintain the property.
According to Robert Kiyosaki, writing in his book “Rich Dad Poor Dad”, he states that the greatest losses of all are those from missed opportunities.
If all your money is locked up in your property and does not generate any residual income for you because you live on the property, you might be forced to work harder because your property remains an expense to you.
It is better than renting because of the security of tenure, but the expenses which include the gardener, security guard and the house- maids makes it more or less the same.
This is the classic middle class pattern and soon one cannot resign, retire or start a new venture because he has to maintain his supposed assets.
All too often, a single house only serves as a vehicle for incurring a second mortgage to cover mounting debts.
What am I saying about your expensive beautiful home that everyone loves? Well, that it is a monster, waiting to swallow you the moment you lose your job or your business goes bust.
The option of owning a big house before starting an investment portfolio early will swallow up all the finances that can be invested in assets that produce money rather than be locked up in one property.
A speedy decision to go big results in future losses of investment money. So am I against the purchase of big and expensive houses?
No, as an agent I make more money on big sales. I am saying that an initial focus on cash- generating assets like the purchase of smaller houses that can generate rentals to maintain the bigger and more expensive property will be much wiser.
As an example, let us say you have US$300 000 to spend, one option is to buy a home for the total amount.
The other is to buy a house for half the amount plus two or three flats that generate rentals that will meet the expenses of maintaining your new home.
My advice will always be for the latter if you do not have other properties or investments that can sustain your lifestyle besides your job.
The key to understanding why the rich get richer is that their asset column on their financial statement generates more money to cover their expenses through residual income.
Whereas for the middle-class a new job, paycheque or contract means upgrading the home so that the expenses increase and they maintain the exact same pressure or strain that was there before the opportunity, if not more.
So when an opportunity of a lifetime comes along, the big house owner that does not have multiple streams of income is too stretched to take advantage of it because they cannot afford the risk of it not working out.
A big home that is not supported by other residual investments (properties) for its upkeep is a potential bottleneck for you when you retire, get sick, retrenched or for your children when you die.
It will become the cliché of the first generation businessperson of Zimbabwe, whose wealth in most cases is not generational.
l Vengai Madzima is a property consultant and analyst with Wisdom Properties. He can be contacted on 0772 468093 email: [email protected]