Monday, June 29, 2009

The Money Tree: Real Estate Investment

So many things in life can be related to farming. Even as an amateur gardener, I see patterns in my garden that imitate other seemingly unrelated facets of life.

One of the most valued plants in our garden is the peach tree. My wife loves peaches and makes it a priority to tend to this tree. I believe that the real estate investment business is like this peach tree. The only difference is that instead of peaches, the fruit is money. For this reason I would like to share the analogy of the money tree.

The fruit of the money tree represents profit. The weather and soil that the money tree lives in is the economy. The leaves of the money tree represent property. They are where revenue is synthesized from the life giving nutrients of market exposure, people, and tenable property. The branches represent the direction of investment whether it be in high end homes, or low-income housing, or any niche or segment in between. The trunk represents business infrastructure and the day to day mechanics of operating a business. Finally, the roots represent equity in the real estate investment business. Over time the leaves feed the roots and the roots grow. In turn, the roots feed the leaves and allow them to flourish. A healthy tree has a good balance between branches, leaves, and roots.

In the real estate investment business, many of us are growing money trees. We work and toil now so that our tree will bear fruit. Over time, and with proper care, the harvest will be easier and allow for enjoyment in life's other pleasures. Some of us inherited money trees from our progenitors(i.e. Donald Trump), some of us started from seed (i.e. me).

Regardless of origin, all money trees require the same care and consideration in order to bear fruit. Lets review the basic needs of a money tree:

1. Regular Pruning - the market place is always evolving. Housing needs and their accompanying market niches vary as demographics change and the local economy ebbs and flows. Likewise, branches on a tree sometimes die. Without pruning these unprofitable branches, the tree becomes burdened and less healthy. The roots are unable to grow as quickly as they could without the dead branch.

2. Regular Water - the economy has seasons. Water is the TLC that keeps the money tree alive and operating. In some locations, the economy is so robust as not to require much effort to make business profitable. In this case, water is plentiful for the tree and requires little attention in this regard of its owner. However, in most places, and particularly with smaller money trees with small roots, regular attention and TLC is required.

3. Pest Control - inefficiency can occur in any business. Pest control is a big part of keeping a money tree healthy. Some parasites will burrow into the trunk and waste resources on needless trinkets and administrative things. Through neglect, some bugs attach themselves to the leaves and make it harder to generate a revenue for the money tree. Fighting off pests is a constant problem regardless of how old the money tree is. Sometimes, the larger the tree, the more pervasive and harder to treat bug problem becomes.

During this growing season, begin to think of your business like a money tree. What does your money tree need? What would make it healthier? How can you help it grow?

My professional job as a Realtor is to help people grow their money trees and prune them when necessary. I have my Miracle Grow and pruners in hand. Let me know how I can help.

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