3 Ways to Make Purchases

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In sticking with my “Keep It Simple, Silly” theme, I want to talk about basic financial principles that will ultimately help us all to be better business owners and investors. These are the concepts that we don’t really stop and think about as we go about our days because they seem so obvious. And yet dissecting these topics helps us see through the muck of the current economy. 

So I want to talk about how we make purchases. In essence, there are only three ways you can buy stuff. Here’s what I mean—we can either buy stuff at retail, at a discount, or actually overpay.

 

Retail

When we buy something at retail, we’re buying it at the market price—no more, no less. Often, we do this out of convenience. If you only use a small amount of a product, it’s probably inconvenient to buy it in bulk at a wholesale store. Or if you need something quickly, it’s more likely that you’ll run to the nearest store. 

Buying at retail is easy, which is a big reason why we do it. Think about it from a real estate perspective: buying a house at market price is convenient, right? It’s fixed up and ready to move into. You don’t need to put in the extra work for it to be fit for living. 

 

Discount

We also buy things at discount, and there are many different ways to do so. One example is through wholesalers like Costco and Sam’s Club, or Macro in South Africa, where I’m originally from. When you buy things in large quantities, you’ll get it at wholesale price. People do this with common purchases like eggs, dairy, toiletries, and other products—especially if they have large families. In early 2020, you were lucky if you were able to buy toilet paper at wholesale. 

We can also receive discounts on items that are distressed. In real estate, you can buy “fixer-uppers” at steep discounts because they lack a lot of costly updates. You’ll be responsible for the updates, rather than the seller, in order to bring it to market price. There are personal and investment reasons that people would buy things in a distressed state. 

And one of the best times to purchase an asset is when it’s in distress. Especially if it’s within your unique ability skillset to fix it up. 

 

Overpaying

The third way we pay for things is by overpaying for them—spending more than the asset is worth to acquire it. You might ask why someone would do that, yet there are legitimate personal reasons. In the current real estate market, plenty of people are actually overpaying for real estate because the demand is incredibly high, and supply is low. And, they’re doing it after viewing properties online, too. People are fearful or they’re trying to leave the city, or they just want a house—so they’re paying anything to secure the asset for themselves. 

 

So how do we navigate these means of payment?

If we could, we’d always want to buy things at a discount, right? Everyone loves a good sale. We’re seeing sales all the time—we get flyers and emails and mail offers with deals. And of course if we really want something, we swoop in and take advantage of the sale. It’s how good business owners and investors think. And some of the best owners and investors are extremely patient. They never pay retail, or overpay. 

They wait for the asset to move through its cycle, and jump once it’s at the bottom. And no matter your market, it’s important to know and understand those cycles. And if you can find distressed assets, and have the ability to fix them, that’s even better. 

Then, you hang on to those assets and allow them to produce income for you. The trick is knowing your market, and your niche within the market, well enough to anticipate when it’s getting close to the top. 

Then, you sell, and put yourself back in a position of liquidity. This is how the most successful investors invest. Just study Sam Zell, one of the most genius real estate investors. He practically wrote the playbook on patience and moving through market cycles. He successfully navigated the crash of the housing market in 2008, better than most. And he was able to sell beforehand, and then buy deeply discounted properties. 

Hopefully this simple overview will help you to navigate and better understand your own market niches, and make more savvy investment decisions. Don’t get bogged down in the mire of 2020; instead, seek opportunity. 

 

You can listen to my new podcast, Cashflow Investing Secrets here.

 

Live your Freedom, Live Your Legacy, On Your Own Terms,

M.C.

M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/

 

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