Do you know these two extremely important facts about making money?
Only once have I seen anybody else making reference to the first one. Never have I heard anybody referring to the second one. Once I was helping somebody evaluate a business he wanted to buy. I explained the first fact. The owner of the coffee shop where we were, overheard me. He chipped in and said: “Listen carefully. It is wisdom. I did not know it and I pay the price daily.”
So, what are these two facts?
Fact 1: You make money when you BUY.
I told the person who wanted to buy the business I think the price is too high. If you pay to much for the business, your returns are reduced right through the process to the end where you sell it. If you pay too much, your returns would be less than optimal, which means you will always be earning less than you should.
This does not only apply to businesses. It applies to everything. If you overpay for a listed share on the stock exchange, it is the same. So-called “smart money” get in for cheap and the “not-so-smart-money” get in at the top when the first group start selling. There is not enough upside left! If you buy a car with the idea to sell it for a profit, you have to buy it a price that allows you to fix it up, add your profit and still sell it at an acceptable price to the next person.
That is fact 1: We make our money when we BUY, not when we sell.
Fact 2: You need an exit strategy.
That means, before you buy anything, you should know how you will dispose of it. Perhaps it does not work like you thought and you want to get out. Perhaps you reach your investment goal and you want to get out. You need answers to two questions:
2.1 Who will buy it from me?
2.2 How will I get in contact with them?
Nobody makes money from Timeshare, except the managing and sales companies. So we never buy it as an investment, we buy a lifestyle and that always costs money. If you decide you do not like the lifestyle any more, how will you get out of it?
Who will buy your timeshare? Somebody who would like that sort of lifestyle. There are many people who would like that lifestyle. There is, in other words, a market.
How will you find the market? Most timeshare companies have sales staff who advertise to existing owners and who will sell on your behalf for commission. But going outside this system is not easy.
Stock exchange listed shares are easy. Buy a share in a property syncication where a number of people own the share is not so easy. It is like the timeshare scenario.
Before you part with your money with the idea that you will make more money, just answer these two questions honestly:
Who will buy from me at a higher price?
How will I find them?
That is fact 2: Have an exit strategy in place.
It is easy to forget these two facts – but it can cost you dearly.