BawldGuy Axiom: Figuring return on disappearing capital is oxymoronic. Treating appreciation as anything but a luxury is akin to walkin’ in an unmapped minefield.

If you’re a real estate investor with property in places like San Diego or Palo Alto, California — you know what I’m talkin’ about — painfully so. Those who’ve moved their capital and/or equity to places like Texas — Dallas/Fort Worth MetroPlex and Austin are my favorites — have not only stopped hemorrhaging investment capital, but have actually enjoyed rent increases the last 12 months. No, really. Increases.

Let’s make your own Back To The Future movie.

Whether on your own or through a 401k/IRA of some sort, you were pretty happy at one time with your mutual funds. I say mutual funds cuz that’s what well over 80% of folks do according to multiple Wall Street analysts. Over the last 20 years BEFORE the meltdown, those poor people were ‘enjoying’ returns of just under 4.5% annually — hardly retirement numbers, unless the plan was to retire at 86. To add insult to injury their kinda sorta growing stock portfolio then took a hit of 40% — virtually overnight.

Go ahead now and hop into the DeLorean. Get it up to 88 mph and land in 1994 or so.

Take the same $50-60,000 you had back then and get the duplex in the post linked to above. Instead of having approximately $150,000 post meltdown, you’d have about $250,000 AND $1,500-2,000 in monthly income, much of it tax sheltered.

Think about that.

Now think about where you’d like to be in the next 16 years or so. Remember the main theme here: The duplex investor started with less than $55,000 and ended up with an equity of $250,000 — PLUS a sweet annual income, much of which won’t be taxable for over a decade into his retirement.

You have a self-directed IRA? A Roth maybe? You can get this done there too. And if it is a Roth, you can grab the cash flow sans income tax as it comes in, as long as you’ve followed the rules regarding age, etc.

Readers: It’s all about adapting to the curve balls life throws our way. Those who make the strategic and tactical adjustments in a timely manner will not only survive, they’ll thrive. It’s all about having a Plan and doing things on Purpose.

Sound familiar?

You may contact me at 619 889-7100 as I’m in need of my daily fix. Have a good one.

It amazes me how many times investors opt for local properties when they have empirical evidence showing they’ll do way better in a region a state or two away. It just doesn’t make sense. This is especially true when technology keeps us so informed, usually in real time. Living in Iowa and investing in another state isn’t anything like it was 30 years ago. Back then an investor had the phone and snail mail.

BawldGuy Axiom: The most apathetic player in any Purposeful Plan for retirement is your capital. It cares not how, why, or where you use it.

Today an Atlanta based investor can own several small properties in Boise, Dallas/Fort Worth, Kansas City, pretty much wherever, and with email, faxes/scanning, and websites be very well informed in almost real time. Pictures can be sent, conferences with management can be held, and decisions can be made while you’re on the 12th tee for Heaven’s sake.

Don’t let your equity stagnate in a local market just because you feel so comfortable. Your money doesn’t know where it is. It doesn’t get cold or lonely. What it does is grow or stagnate. If you’re in a region giving you a lot of nothing right now (and the foreseeable future) give serious thought to getting your equity outa Dodge and into a more stable, growing region. Whether you’re growing or not you keep having birthdays, right? Right.

Now, I ask again. Do you want a local $10 or a far away $20? The money doesn’t care. Your retirement does. Call me and let’s talk about your retirement — 619 889-7100. Have a good one.

For the record, San Diego is not, by any stretch of the imagination, the Lone Ranger in this. It’s true for California in general. Look at where you live. Is the median price of a home affordable for the typical family? No? See, it’s a matter of degree. San Diego is ecstatic cuz their median home price is now under $400,000! What’s your region’s median price? If it’s much over $200,000 the regular folk are beginning to be crowded out. If that’s the case, your 1-4 unit residential income properties are already becoming less attractive.

Enter what appears to be a paradigm shift — in fact two .

Since we can all remember, real estate investing has been a local exercise. You decided to invest, picked an attractive location and property, then pulled the trigger. For regular folks the option of investing outa town, much less in other states, clearly wasn’t on their menu.

Paradigm Shift #1

San Diego is no longer a slam dunk region in which to invest, especially for retirement. The factors needed to produce a minimum acceptable capital growth rate are plainly out of the picture now. When a down payment of 35-45% is required to simply break even on a 1-4 unit property, it’s time to look elsewhere. Also, there’s the problem of an already aged (as in way to old) product. Pick whatever San Diego neighborhood you prefer, and the youngest properties will still be 20-30 years old. In fact, many of the areas traditionally most attractive to investors are old by definition. Why would you buy a 30-60 year old duplex, put 35% down, then have operating expenses higher than the national norm due to age? Also, and this is crucial, the price to income ratio, regardless of age, is vastly inferior to many regions with better economic futures.

For instance, Boise, Austin, Dallas/Fort Worth MetroPlex, Kansas City, and a few other regions offer much younger (sometimes new) properties for 50-65% or so of San Diego’s (Or say, Palo Alto) prices — but for about the same rental income.

BawldGuy Axiom: When analysis clearly indicates one property, or one region is inferior to another, either believe your analysis or ask yourself why you did the numbers in the first place. The facts are the facts.

Paradigm Shift #2

Just as the world is much smaller than it was 50 years ago, the same is now true when it comes to buying and selling real estate. Real estate investors can now buy, sell, refinance, and exchange real estate in multiple states without leaving their living rooms. It’s a matter of understanding what’s possible, what’s available now on your menu. Once you grasp the potential you have at your disposal, your horizons will expand very positively.

BawldGuy Takeaway: A real estate investor’s insistence on remaining in their own relatively expensive backyard, is now an inferior option when compared to newly available alternatives around the country. You needn’t be ‘area bound’ any longer. Your menu has expanded.

Give me a call at 619 889-7100 or email me. Together we’ll figure out what your potential is. Have a good one.

Growth is the name of the game, capital growth especially, as it relates to investing in real estate for your retirement. The #1 factor in any region’s economic growth is always about jobs — now and in the foreseeable future. Job growth generates population growth which then becomes a dynamic formula for long term success.

I encourage San Diego income property owners to pay close attention. While watching, mentally compare our investment/business atmosphere to those of Texas. Then ask yourself why you’re not already in the process of moving your equity there.

When you’ve finished watching and pondering, give me a call at 619 889-7100. We’ll figure out if your situation merits a move at this time. Have a good one.

They found the general area of Dallas doing astoundingly well vs the rest of the country. Counting everything, the year ended in May showed that area of Texas, known locally as the MetroPlex, was the most resilient real estate (housing) market in the nation. Told ya so.

San Diego? They’ve tumbled another 19% over that same period. I kept poundin’ the drums last year, hoping against hope real estate investors in areas like San Diego, (Hello, Northern CA, Phoenix, et al.) would look at the data and follow my advice — Get Outa Dodge. It’s not too late. The ever popular ‘Window of Opportunity’ is alive and well — along with very cool investor interest rates.

Warning: Dealing with lenders these days is more than a giant pain in the butt. They’re now checking to see if you were in fact the real author of that fifth grade book report on Iowa: Corn Farmers to the World you turned in back in 1967. If they find that the rumor your buddy Steve did it for you was in deed true, there could be higher costs involved.

My good buddy and lender Tom Vanderwell told me earlier today about a meeting he had today in which more new Fannie/Freddie guidelines were passed out. Tom works for a large national bank in Michigan. Anywho, seems most of the new rules are meant to antagonize more than anything else, but the long and short of it is, the 30 day escrow might be a victim.

Example: Every single tax return will be double checked with the IRS itself. Let that percolate a moment. Every single applicant for a loan will have their tax return(s) verified for accuracy directly with Internal Revenue. Gee, that won’t delay things much, right? Yeah sure, like ordering that diet Coke with your double bacon cheeseburger ‘n fries makes a whale (pun intended) of a difference in your waist size over time.

If you own San Diego income property, or anywhere like San Diego, we should probably talk. Your status quo can be improved far more than you may realize. My cell number is 619 889-7100. Have a good one.

Think buying income properties, allowing them to grow in value over time, then exchanging them — tax deferred via 1031 — for the next 30-40 years is the ticket to your dream retirement? Think again 1031 Cult Breath. Here’s the wicked little surprise that’ll be awaiting you on the first April 15th upon retirement.

Think of a gigantic teeter-totter you’ve lovingly constructed during those 3-4 decades of investing and tax deferred exchanging. One end is heavy laden with tons of retirement income. Pat yerself on the back — great job. The other end of the teeter-totter is loaded with the $4.93 a year of depreciation you have left, due to a huge lack of Planning when it came to tax shelter for all that retirement income.

Oops.

A relatively recent change in tax law involves the taxing of ‘used depreciation’, called ‘Recapture’ at a different, read, higher rate than capital gains. You can pay 24% on the accumulated depreciation you claimed on your tax returns during the ownership of any particular property. You shrug, saying OK, whatever.

Here’s whatever — this tax is on a ‘paper’ event. This isn’t like capital gains taxes for which the taxpayer usually has cash from which to pay said capital gains tax. Nooooo — This tax will come from whatever money you happen to have on hand. So if yer a do-it-yourselfer, be aware of this potentially nastiest of surprises.

Finally, in the last couple decades I’ve been the bearer of bad news on this specific fact of real estate investment life about a dozen times or so. A couple of those times I was told BEFORE it was too late. Here’s the scenario. You bought a property eons ago, and now find yourself with a couple boatloads of equity. You decided to pull out a largish portion of that equity in the form of a new loan. You take the lion’s share of your new found, absolutely tax free (not deferred) cash to buy more property, pay off your Beemer, and write two tuition checks for a couple youngsters carrying your DNA.

A month later you decide it’s time to trade that property, as you’ve become aware of some superb duplexes in the Dallas/Fort Worth area. You sell the property, quickly turning it into a tax deferred exchange — following the rules at every turn. You close the exchange and are very pleased with the results. Then you fill out that irritating form your CPA sends you at some point every year around Halloween or thereabouts, which asks all kinds of questions in anticipation of that year’s tax return, due next April. Then you get the phone call. Your accountant says you may have an itty bitty problem, and by the way, why didn’t you keep him/her in the loop during the exchange?

See, you paid $200,000 originally, then borrowed $400,000 shortly before you did the 1031. You’re intent was pure — refinance to purchase more investment property, pay off your car loan, and get your kids through another year of college. Problem is, the IRS employs a very cynical group. They may send you a staggering tax bill for capital gains received via that very same loan you put on the exchange property just before you did the exchange dance. Why? Simple — You took the ‘tax free’ cash out via the new loan (here it comes) ‘…in anticipation of executing a tax deferred exchange for the sole purpose of avoiding the capital gains taxes for which you would’ve generated had you taken that same cash out of the exchange proceeds’. Have fun finding that wad of cash.

Oops.

Now to be fair, I’ve seen clients and other investors do exactly this and not pay taxes. Why? Who knows? My theory’s always been that it’s something most investors don’t do, at least on purpose, and it just doesn’t get picked up by those reviewing your return. But still, who knows? Not me. But like Clint Eastwood said, “Ya feelin’ lucky?”

Everybody have a wonderful July 4th weekend, and stay safe. Keep this post in mind when you call me the first of the week. 619 889-7100. Have a good one.

No, this isn’t about the glass being full or empty, half or otherwise. It’s about dealing with what is, and making decisions based upon what is, not emotion.

Here’s a totally unrelated example of emotion based pessimism vs the ability to see reality, while effectively probing for avenues of potential success. What? Huh?

There was once a 13 year old playin’ centerfield in an all-star baseball tournament years ago. His team found itself in the position of no outs and bases loaded — in the top of the 1st inning. He was waved in by the manager to get them out of the dilemma. (A pitcher when not an outfielder.) What to do? Since he’d paid attention to the base runners while in the outfield, he’d noticed the runners on 1st and 2nd were both pretty cocky.

To make a long story short, in the next three ‘pitches’ he picked off the runner on 2nd, then the one on 1st. The next batter, lookin’ to make up for this in one swing, feebly popped up. Four pitches, three outs, no runs. The same exact scenario played out the next day. The results were the same, except for one run on a seeing eye 17 hopper through the infield. Six runners, no outs, one run scored.

The point?

How easy would it have been to arrive at the mound thinkin’ why me? Seriously, from a pitcher’s point of view, bases loaded with nobody out is as bad as it gets. The reality though was what this kid observed objectively. His goal was to allow no runs. His analysis was geared to that end. He searched for weak points ripe for exploitation.

Warning: Dangerously sharp segue ahead.

Isn’t a 3½ year real estate market correction with major lending hurdles the equivalent of bases loaded, no outs? Uh, yeah, it is. Though many of those on the sidelines waiting to see when the recovery begins, have well thought out reasons, the vast majority of fence sitters are simply afflicted with emotional pessimism. We can be pessimistic about the weather. We can be pessimistic about a lotta things. But much of what folks call pessimism isn’t about objective thinking.

It’s about the decision to redefine pessimism as reality.

Or, put more plainly, avoiding reality.

Are there times to sit on the real estate investment sidelines? You bet there are. I literally took two years off in the ’90’s. The ‘Gone Fishing’ sign was up so long it almost faded completely. This correction, in my opinion, is not one of those times. Not even close.

The big investment capital in the ’90’s disaster went one of two places — to the sidelines, or buying up relatively large commercial/retail properties from the government’s now infamous RTC. (Resolution Trust Corp.) Not true in today’s atmosphere. Not by a long shot.

Today there are a handful of growth regions, true growth regions, where developers and builders are getting into virtual fist fights over well located land for immediate development. Why on earth would that be the case? For the same reason it’s always been that way. The product is selling — in some cases at a fairly impressive rate. The financing you ask? How about a huge, very well known lender aggressively courting a builder to become the preferred lender for his project? That happened with me almost in the same room, virtually speaking, a couple weeks ago. After I heard from the builder I wished I’d been there.

The funny part is, the builder turned ‘em down. And he should of. What seemed to be a good marriage was really a kinda sorta good match. The terms were vanilla, and the only real enticement was a promise from the lender to pay the builder’s title policies. Big deal. Investors are the borrowers. What have ya got for them, Einstein?

Reality: Demand in bona fide growth regions has been, and remains demonstrably strong. Prices haven’t dropped. Vacancy rates have remained stable or even shrunk. Rents in some projects have actually increased this year significantly. (3-5%)

Reality: Lenders are now openly and sometimes mercilessly competing for business. Not for San Diego income property — but for income properties worthy of the name. And in areas benefitting in a big way from the public’s attraction to it. Remember — lenders lend. When they find a high quality product, well located, with a great bottom line, they run, not walk to make the loan.

Reality: (A ‘portfolio’ lender is one who lends their money, and keeps the loan, rather than selling to a secondary market entity such as Fannie Mae.) Portfolio lenders in these select areas are openly courting investors who are already over the Fannie/Freddie property limit. That would be 4, including primary residence. The latest lender with whom we spoke said the limit was $4.5 Million in loans per investor.

Works for me.

Reality: If you own income property in San Diego, Palo Alto, or markets similar in their insane price/rent ratios, your best move is Outa Dodge and into one of the growth areas. Where? You could head to Austin, Dallas/Fort Worth (MetroPlex), or Kansas City. Those aren’t the only areas, but you get the idea. You can own younger, well located investment real estate that beats areas like San Diego every way from Sunday. It’s not a fair fight — or a debate either — in my opinion.

Reality: By remaining on the sidelines you’re possibly endangering not only the timing of your retirement, but the ability to retire at all. Much like the results of Grandpa Economics, your retirement’s projected income will either be severely retarded, or retiring at all will be postponed.

Reality: If you’ve lost money on Wall Street, or are invested in San Diego income property (or areas like it), maybe the most important ‘reality’ with which you must come to grips, is this: Time is not your friend.

BawldGuy Axiom: Though pessimism has many meanings, most of the time, if we’re honest, it’s the disease that takes over when one decides reality is too tough for them to handle.

Since I first started sayin’ these things to local San Diego real estate investors, those who’ve remained frozen in time by indecision have lost an additional 20-30% of their properties’ value. If that describes you, don’t fret. No use beatin’ yourself up rehashing the past. Look to your future and decide to move your equity to regions in which lenders are battling to be.

Here’s tonight’s final reality. If you contact me I will be there. The window of opportunity is still open. The ‘hordes’ haven’t figured it out yet. They will though, and that’s when time will really become a disagreeable fellow. Let’s talk. Give me 15 minutes of your time. You’ll at least learn I’m real. Have a good one.

San Diego (California in general) takes another couple years to stop the decline. Another to stabilize. Two years at 2-5% appreciation. Before ya know it you’ve raised enough to pay for half your sales costs in five years. Let’s party.

OR

You can take yer $100-500,000 into a growth region or three and get 3-7% for the next five years. Even if it’s say 5%, if you executed a tax deferred (1031) exchange into say $1 million of property, your first year you’ve grown by $50,000. Even if your $450,000 duplex or rental home in SD went up 10% you’re still behind — and the gap only widens.

BawldGuy Axiom: Waiting for California (San Diego, Palo Alto) real estate to resume normal capital growth rate is akin to waitin’ for your cat to bark. Definitely not a good use of yer time — or your capital.

This cat wouldn’t bark no matter what drug the vet gave it. Sweet relief from broken leg suffered in three story miscalculation. The bird made a clean getaway.

You might as well be waitin’ for yer cat to bark as wait for the San Diego market to keep your capital on the growth trail. Adapt to the new reality. It’s now almost the same trading to other states as it is staying home. And in the end? Your capital doesn’t know where it is. It does have a need to flourish though. The Boss’s cat wasn’t even gonna

Texas, including Dallas and surrounding areas, Austin, Kansas City, and hopefully soon, the Carolinas and Georgia — all better performing markets than San Diego. Not even a close call.

Oh, and for the record? No matter how long you stare at yer cat, it ain’t gonna bark.

Maybe while yer starin’ at Fluffy, you can send me a quick note. We’ll talk about how a Purposeful Plan will most assuredly make the difference in turbo charging your equity’s growth rate. Have a good one — and thanks Kelley.

If the only two things you learn is your net worth and how much yer savin’ each month — or not — the effort will have been easily worth it. I remember one weekend in the mountains with The Boss. I was doodlin’ on a legal pad, and started writing down my known recurring monthly expenses, for both home, and office. When finished I was staggered by the number. I shouldn’t have been, but isn’t that how most of us are?

BawldGuy Axiom: Garbage in, garbage out is just the modern way of sayin’ what Grandma taught me. One of her favorite sayings was, “‘Bout the time the farmer got the old mare to work without eatin’, she died.”

The first step in all Purposeful Plans is to clearly establish where you are now. Good, bad, or ugly — at least you’ll know. Look at it like goin’ on a long trip in a car. If I tell you your destination is Kansas City which way are you gonna start drivin’? Simple, yer not ’till you know where you’re startin’, right? And if yer startin’ in Palo Alto, your route won’t look anything like the one startin’ in San Diego, or say, Dallas.

This is why you should look at our retirement as a destination, and your Purposeful Plan as the map. Hi, my name is Jeff, but folks call me the BawldGuy. Everyone buckled in?

Knowing where you are now is indispensable to anyone’s Purposeful Plan. Headin’ south from Austin in order to get to Kansas City ain’t gonna cut it, no matter how ya slice it.

While yer at it, take a few minutes this weekend to listen to a podcast or three. They’re up top and a little to the right. And if the mood hits ya, and contacting me begins to sound like a good thing, don’t hesitate. In fact, leave yer number, and I’ll give you a call. I’m just hangin’ this weekend anyway.

Allllrighty then. Back at BawldGuy Ranch I have some tuneage for ya.

Also, and don’t tell a soul — am headed soon for the Carolinas. And yes, for the record, we’re still closing transactions for clients with 10% down. You have to share Divine DNA proven with blood test, but it happens. Add Purposeful Planning to the mix, and pretty soon you’ll be on yer way to a magnificently abundant retirement.

The first video is just for fun. A certain midwest agent snarked something about my yesteryear choices for music. Well here ya go, Pilgrim. Eat my dust.

The second video was offered up by a friend on twitter.com, where I’m known as, (surprise) @BawldGuy. She said I should put up something by Toby Keith, then got specific. I really liked her choice, ‘cuz it brings back memories. (Don’t ask, not tellin’.) If yer lookin’ for diverse music, these two are about as different as yer gonna get. You can thank Brad Coy for the Arcade Fire song. Jamie Geiger sent in Toby’s piece. Thanks again guys.

Here’s where the second video should be, but embedding has been disabled. Oh well. just click here and Toby will sing for ya.