Posted on February 9, 2007 @ 9:34 am - Written by BawldGuy
This is basic stuff. Real estate investment 101. Serious investors are in for the long run. They know in their DNA the dominant trend is historically is up. On the other hand they don’t get full of themselves during a spike up in prices. They calmly assess the situation and make the right move — which might be no move at all.
Looking long term often helps investors to avoid moves made with short-sighted thinking. We didn’t move equity out of San Diego until it was obvious the prices for income property there just didn’t work for our leverage minded, growth oriented investors. It wasn’t a hard decision.
The road you take on your journey to retirement isn’t all smooth going. It’s not full of potholes either. It’s just a very long road taking you to the retirement for which you’ve worked so long and hard. There will be detours, and unplanned layovers, but you’ll get there — because you take the long view.
The huge drop in the stock market back on October 19, 1987 was so traumatic the market didn’t open the next day. Those who kept their heads didn’t lose a dime. They just held strong, knowing the historically dominating trend would once again prevail. Their judgment was vindicated.
If you’re in a stagnant market, look at its long term future. Are prices at a level that allows more room to grow? Will it take too long for a turnaround? Is there another region with all the infrastructure in place for long term growth? Is it critical that you not miss out on too many growth years?
Sometimes the long view leads us to make pivotal decisions that we know must be made in a timely manor. Those decisions are almost always pretty easily made, due to the available factual support. But still, they must be made.
Taking the long view can make most of your real estate investment decisions relatively easy — or at least easier.
Posted on January 28, 2007 @ 5:24 pm - Written by BawldGuy
If you have given yourself a clear picture of your current financial status, and know exactly where you stand and how much investment capital you have, you’re ready for the next step.
How much income do you want for your retirement years? What’s your point B?
Stop — don’t answer without thinking — a lot of thinking. Ask your parents, or grandparents if they’re alive, what they thought when they were your age, was going to be a great retirement income. Then apply that income to the time period in which they actually retired. They were likely woefully short of what they really needed. The irony is that they’ll probably tell you the amount for which they planned was ‘a bunch’ in their minds.
How much is enough? How much is comfortable? How much allows you to live your best case retirement? The one you’ve always imagined.
It’s absolutely possible. You just have to go after it on Purpose, with a Plan.
Hint: Be generous. 
Posted on January 20, 2007 @ 1:43 pm - Written by BawldGuy
We’ve all been on long trips before. You plan how to get there - will you drive or fly? If you fly, when will you leave, and on what airline? Am I likely to face delays of some sort - will the weather interfere. Will you be able to roll with the unexpected punches?
If you’re investing for your retirement, thinking of the process using the metaphor of a journey can be quite helpful. You’ll want to insure you’re on the right path.
Most people don’t know exactly why they invest except that it’s ‘better than not investing’ which of course is true - most of the time.
The majority invest because they want a better retirement than they see racing at them like a freight train harboring bad intent. Usually though they just don’t know how to insure their retirement will look anything like what they imagine.
It’s a journey whose ultimate destination in the best of all world’s match what they’ve always imagined.
Some facts to consider.
- The average 55 year old has less than $60,000 in their 401K or IRA.
- A free and clear home plus Social Security is not a retirement plan - it’s a life sentence.
- Knowing where you are now is your first priority - you can’t get to pointg B if you don’t know where point A is.
- Contruction of a Purposeful Plan is a must if you want to enjoy retirement. Remember, it’s a journey.
- Using your Social Security check for spending money is very cool!
Now ask yourself again - Why do I invest in real estate? How should I plan my journey? Is the plane I’m on headed in the direction I want to go? Will it get me there on time?
Think of a time when you traveled somewhere far away and had to make all the plans yourself. What did you think about? Was it all the fun you were going to have? Did you plan for mishaps, delays, bad weather and the like? Are you prepared for the worst? Are you making use of the best information possible? Do you know what that info is? How important is this journey to you? Are you wondering if you’re going to get there on time? Will you arrive at your final destination with all the right stuff in your suitcases? Are there questions you didn’t even know to ask?
Are you thinking this journey is too important to mess up? Is your imagination working overtime bringing into your mind pictures of what could go wrong?
Maybe you need a Travel Planner — Someone who has done this over and over — successfully. See, you feel better already. An important journey is far more likely to succeed with a Purposeful Plan. How important to you is your journey to retirement?
Posted on January 4, 2007 @ 10:16 pm - Written by BawldGuy
You would like to quit your day job and retire on the cash flow from the many rental properties you own. You have a problem though because the income just isn’t quite high enough yet, and probably won’t be for a few years. Yet you want to retire because you have so many other things you want to experience and accomplish. Is there a solution out there that might make it possible to move up that retirement party? The answer for some is depreciation. Say What?
Let’s take an example out of my own client files. The Millers have been clients for several years having come to me with only their home and less than $100k in cash. To make a long story short, in a few years they’d parlayed a strong market, the ability to take action, strong wills, solid FICO scores, and decent five figure incomes into enough sheltered income for Missie to quit her job. She was 37 and Scott was 40. They had three kids. Their Plan, which they executed to near perfection was to buy property using leverage wisely, trade when the market said it was time, and keep doing so until she was in her mid-40’s. At that point the conversion to a cash flow emphasis would make a very comfortable retirement possible.
Since they’d been so focused during the beginning years in acquiring as much property as possible, they had also accumulated an impressive amount of annual depreciation. As a matter of fact, through the use of well timed tax deferred exchanges combined with prudent use of leverage, and pulling the trigger when their Purposeful Plan called for it, they found themselves with about $200k of depreciation!
They told me they’d changed their minds about working until Missie was 45ish or so. She wanted to be a stay-at-home mom. A modification of strategy was necessary. With only Scott working now and their job income just below $45k, they had a ton of unused depreciation. Most of that depreciation remained available because in anticipation of Missie staying at home now we’d arranged for some of the properties to be refinanced for a higher cash reserve. This resulted in these properties yielding much less cash flow. This was fine with them because they liked my Plan modification which would generate more non-taxable income while maintaining the growth position.
Here’s what we did.
We simply chose a property or two we knew would yield about $100k in net equity if sold. The unused depreciation would offset any capital gain. Now they had cash reserves, Scott’s income, plus another totally tax sheltered $100k. They took one look at that picture and Scott quit his job too. Now we sell a property or two a year, (not a problem) they don’t pay taxes, and they’re both home with their kids. Their portfolio is still growing at a magnificent rate, and the Plan calls for them, in 2007 to trade some of their Phoenix properties into either Boise or Ogden. In fact they were listed just the other day.
Don’t you love it when a Plan comes together?
Posted on January 3, 2007 @ 10:14 pm - Written by BawldGuy
You wish to invest in real estate, or maybe you already have, and are now ready to move on to bigger and better things. You realize the agent who sold you the investment(s) you have now is really a home agent who said the right things, and talked about cash flow, return on investment, and ’write-off’.
But now your gut says he’s not the guy. You need answers to too many questions as you get deeper into this new area of investment, and more of your future is at stake. You’re beginning to think your agent may not know much more than you do. It could be a lot like going to your doctor who is fine for annual checkups, joint pain—but at the first sign that your heart is acting up—it’s time to call in a specialist. Same is true of your agent—better to work with a guy who is experienced in real estate investment properties.
Among the many other skills home agents must master, very few of them have anything to do with investing, or any sort of related analysis. What an investor needs is a real estate investment broker to know what is critical to their long term success — because your retirement should be a beautiful experience.
The agent you choose needs to know the following.
- How to analyze your current financial position– especially as it relates to establishing a Purposeful Plan.
- How to create an after tax cash flow analysis. Not always needed, but an incredible tool.
- How to construct a viable Plan integrating the investor’s predictable retirement cash flow needs, financial abilities, tax ramifications, accounts for reserves, which he can execute without having to be Houdini on a good day.
- Which loans make sense for which Plans and what kind of property.
- The ins and outs of a tax deferred exchange and when NOT to use it.
- An overall understanding of how all this needs to be integrated into a seamless execution of the investor’s Plan–and be able to make it happen–with the correct timing.
That last one is the one I’ve seen trip up more investors than anything else. You can know analysis from A to Z, understand financing backwards and forwards, write books on tax deferred exchanges, but if you don’t have a sense of timing that integrates perfectly with your client’s Plan, huge opportunities can be lost. And lost opportunities can mean hundreds of thousands of dollars in the long run–sometimes even over as short a time as a year.
Just ask someone who should have traded their San Diego property back in 2003-4 into either Phoenix, Boise, (here are my previous posts on Boise) or any number of other better growth markets. It was obvious then that San Diego wouldn’t support either leverage or cash flow approaches at that point. For that reason alone it was time to make a move for many investors. Timing, as the lady once said, is everything.
One final note and I mention this at the end because it can be like chocolate sauce on your favorite ice cream. It makes a world of difference. As you’ve read before here, I’m an advocate of incorporating a professional Financial Planner into the mix with my clients. This is only a recent development because it took me until this year to find a financial planner who didn’t think real estate was a satanic creation. The Certified Financial Planner (CFP) adds a huge dimension to the Plan. Allow me just one quick example.
One of my long time clients recently agreed with me that refinancing one of their properties was prudent. They’re going to get $6-700K tax free cash as a result. They’ll add a small portion of this money to their Boise investment Plan, but retain roughly 80% to purchase, over a five year period, a tax free annual income of about $55-95K–for life. This will be in addition to the six figures they already receive totally tax sheltered, from their real estate portfolio. In five years they’ll only be 63 years old, with $150-200K after tax income yearly.
OK now, a show of hands, who likes that idea?