Warren Buffett, one of the world’s richest men, says that you must either find value or create value to be a successful investor.
Creating value doesn’t always have to come from inventions or new technology. There are many other ways to create value. Artists paint paintings that are priceless; authors write books that pay them royalties for years; entrepreneurs create businesses that offer products or services people need. Indeed, there are endless ways to create value or build up assets. All you have to do is to be creative, because it is the thinking in a new way that creates value or adds assets. Once you have that new way of thinking, you will be richer than you ever have dreamed possible.
The sad truth is that most people are too lazy to think or be creative. Or, they go about doing things the wrong way. For example, some would spend a lot of their family income for purchase of a new car even when they don’t really have to have one. On top of it all, they pour in more money for fuel and maintenance to keep up with the show. This is an example of turning cash into trash, unless the car serves as a justifiable means to a more valuable end.
What we need to learn is this: turn trash into an asset. Although my point is really metaphorical, let me start with a literal example. Many developed countries are increasingly converting their garbage and waste into renewable energy sources. They are turning what they don’t want into want they need. They collect organic waste, construction debris, discarded tires, thrown-away papers, green leaves, to name a few---and load them into boilers at renewable energy facilities to generate electricity for use in their communities. And unlike other renewable power sources such as solar and wind, these biomass power generation facilities can operate 24/7 and provide a consistent supply of electricity. In addition, some facilities can reuse some materials to make asphalt paving, new cardboard, drywall, recycled plastic, and metal products. In a literal sense, this is converting garbage and trash into assets. But let’s not forget that the real asset here is something that is invisible: the thought-process behind it all, which is the ability to take ideas and turn them into assets.
Now, let’s use an example from real estate investing to illustrate how we can make money by adding value. A little over 10 years ago, a resort developers’ company in the United States acquired several acres of agricultural land nearby a huge lake which covers 36,700 acres and is only 53 miles east of Dallas, Texas. Their goal was to turn this raw land into a prime resort location. First, they built the roads and underground drainages connecting to every plot they wanted to sell. They also added a beautifully designed golf course and a marina beach, as it were. Having been drawn to all these attractions, my wife and I felt that it would be smart of us to invest in one of these plots. For the first two years, the market value of our investment was growing as development was progressing and more clients were coming in. But perhaps we became a little too greedy, too. So instead of selling it, we decided to keep it for ourselves. We began to dream that one day we could build a vacation home where we could play golf if we wanted to, enjoy boating or fishing on the lake at anytime, or do horseback riding in the vast areas around, or even go hunting in the adjoining reserved forest with wildlife and a state park. This is how the above-mentioned corporation made the appeals to us by simply trying to turn an agricultural land into a prime resort area. And yes, they must have made a lot of money from people like my wife and I.
But, unfortunately, this investment of ours didn’t turn out well. When the 2008-09 recession occurred in America, the real estate market came crushing down, which possibly affected our resort developers’ company very badly as it finally filed for bankruptcy. As a result, the value of our land went down like a rock and we couldn’t even sell it, either. The lesson for us, though, is this: sometimes your investment may not pay off, or you may lose money, since you cannot always predict if the market will remain strong or if the company you do business with will continue to deliver all that it promises.
And yet, we must not forget that you are likely to make more money by investing in real estate than in any other investment vehicle. For this, you must follow where the overall development is heading or which direction the market demands is going. If you are right in your calculations, you could acquire huge tracts of agricultural land and turn them into residential plots. Or better still, you could convert residential areas into commercial zones. This way you could make even more money…by increasing the value of your property or developing it to attract the market.
