You have saved some money and are ready to let it work for you. For instance, you decide to buy a couple of shares that – at first glance – seem very profitable. Unfortunately, the share price drops, and your potential profits change into a loss. This happens to many people and people, therefore, tend to think that investing is risky. The reality is that a lot of risks are pretty manageable. The double win factor is something that I use to reduce the risk and to increase the profitability of my investments. It’s not a groundbreaking theory but something that I thought out while investing my money. In this article we will explain how using the double win factor in your financial choices can help you.
What is the double win factor?
The theory behind the double win factor basically is that everything you invest in should generate at least a double profit. This doesn’t have to be a direct profit, but the investment itself should be able to generate two separate value streams that benefit you.
Let me give you a simple example to explain it. You could save money and buy a relatively cheap house to rent to students. You put a couple of advertisements in various Facebook groups and pretty soon the house is rented out. From that rental income, you can pay your monthly bills and you might even save some money as well. The house has become an income stream. This is great, but be aware that the rental income only gives you a single win. Let’s now explore how we can create a double win factor with this investment.
Imagine now that you invest the same amount of money to buy a relatively cheap house to rent out to students. The house is located in an upcoming attractive area of the city. You did not focus on rental purposes alone, but you made sure to buy a house that has potential when it comes to the added value of the real estate itself. You still will be able to rent out the rooms to students, generating a rental income stream and save some money. However, the double win factor also kicks in since you invested in a house that is expected to increase in value over time. By buying the house in an upcoming neighborhood you can create extra value from the property. This is your second win: you created the double win factor.
The double win factor for reduced risk and increased profitability
With the above example, you will reduce the risk of your investment enormously. You simply receive rental income from the moment that you have tenants in your house. So when the ROI of your rental income is high enough you will earn your investment back in just a couple of years. I know people that have a yearly return of 16% on only one real estate investment! You can easily get such numbers when investing in cheap properties in upcoming areas. Also, by using the double win factor you can create a situation in which even if the house would NOT be rented out, the investment would remain interesting because of the increasing value of the property itself. Since you can combine two ways of creating money from one investment, you increase profitability and reduce financial risk at the same time.
The devil is in the detail – Using the double win factor in your financial choices
A big part of using the double win factor in your financial choices is in the art of decision-making and being realistic with the numbers. The double win factor helps you to reduce the risk factor in your investments by having a second value stream in place. The two value streams work as each other’s back-up system. They have each other’s back so to speak. Using the double win factor as a measure allows you to make better investment decisions overall. What do you want to invest in? What are the PROs and CONs of the investment? And how can you mitigate risks that are coming with your investment? The devil is in the detail and turning risk into something profitable is key in this strategy.
When using the double win factor to determine whether an investment is interesting, I always ask myself the following questions:
What are ways this investment can generate money?
It’s important to think of all possible ways your investment will be able to generate money. Thinking outside the box may be very interesting to find new opportunities. Create an overview of all possible win factors in Excel and calculate the profits per stream. We always use the double win factor in our investment decisions and have never regretted it. So only proceed if the investment can at least create two separate value streams. Read more about using assets to generating extra income streams.
What is the average Return on Investment?
The total Return on Investment (ROI) is of course very important. Having a high ROI increases your chances of having a profitable investment in the end. But having multiple components that build up the ROI is something that is often overlooked. Creating a double win factor gives you more flexibility and reduces your risk and dependency on one income stream, so we would rather have a somewhat lower ROI that is build up out of multiple income streams than a higher ROI only based on one income stream.
How flexible is this investment?
External factors can change the situation around your investment and may make it less profitable or attractive. We have experienced local governments wanting to reduce the number of rental houses in a certain area and suddenly tenants needed a permit to be able to register at the address. Such external changes can have a big impact on the way you can generate money from your investment. Play devil’s advocate all the time and question yourself constantly: what are possible scenarios? Think of multiple ways to adapt to these changes so you are mentally prepared and quick to react. Try to collect as much information as possible before investing. Use the information you have and your own imagination to determine what your flexibility is in generating income from the investment.