Posted on May 6, 2008 @ 11:00 pm - Written by BawldGuy
For those not in California, try to imagine the following. You’ve been investing in real estate since early adulthood, and have done exceptionally well. Regardless of the cyclical downturns, it’s like your touch literally shames Midas. Your mere presence in a real estate investment turns it to guaranteed future platinum. Face it, you’re a stud.
That is until the end of ‘05 when your model was turned inside out, upside down, and smashed into a thousand pieces. There’s even a problem with that historical flashback. See, California investors, through no fault of their own, have contracted Super Investor Syndrome. I’m living proof it’s curable, but it’s a potentially devastating experience. The first symptom is the appearance of a large red S on your chest whenever you enter the real estate investment arena. Though yer unaware of this, yer the only one who actually sees it.
It’s insidious the way it slowly, sometimes over decades, infects its victims. No matter what they’ve done the last four decades, they’ve done spectacularly well. Their net worths have skyrocketed through good times and bad. Nothing ever had the power to derail their investment prowess — or so they thought. After the first several years they slowly but surely began to believe how smart they were. Again, I’m speaking from experience here. Sometimes my red S actually glowed in the dark.
Posted on May 3, 2008 @ 9:05 pm - Written by BawldGuy
Sounds a little silly, doesn’t it? It does to me too, but it’s true just the same.
Here’s something empirical to support that.
A single small investment requiring $25-35,000 will grow to a million bucks in 20 years. “Wow!” You exclaim skeptically, “That seems a little optimistic, doesn’t it?” Not really. It includes all real life costs of buying and selling/exchanging on the way. It also includes the assumption you’ll never average more than 5% annual property appreciation — never. Again, going slowly keeps you on the road to Wow!
The thing is, in my nearly four decades of experience, I’ve yet to see a 10 year period without at least a year or two of 10% appreciation +/-.
$25-35.000 in a decently located property, attracting solid tenants, paying market rents. Exchange your equity a few times in the 20 year period, nothing perfect, just prudent investments, and at the end of the road — collect yer million bucks. Read the rest of this entry »
Posted on April 22, 2008 @ 11:33 pm - Written by BawldGuy
Was talking with a client today, when she brought up a common misnomer. “Shouldn’t we be buying 10-20% below market value? Isn’t it a buyer’s market?” Great question. (Thanks Brandi) The answer may surprise some. It falls under, ‘Ya can’t have it both ways’.
Though in the last year or so we’ve been able to secure clients some impressive discounts, most of the circumstances making those discounts possible have changed.
Let’s think this through. Demand for well located real estate is increasing in the regions in which we do business. This is a good thing. Take Austin — a place we no longer do business. Don’t get me wrong, we love the place, but the demand has increased to the point prices have made it relatively unattractive to investors. The rent/price ratio has degenerated to the point where investors must now put enlarged down payments in order to break even.
See? On one hand you have the good news showing the Austin area roaring back from the market correction. On the other hand you have the consequences of that same good news. A double edged sword just waiting for the inexperienced investor. Higher prices driven by significantly increased demand, outpacing rents, (Increased rents will very soon follow, but not fast enough in Austin.) results in investors looking elsewhere. Why spend your hard earned capital in Austin for $X worth of property, when you can go to friendlier areas and acquire $2X worth of property? If capital growth is numero uno on your agenda, investing in half the property you could prudently afford makes zero sense.
Posted on April 5, 2008 @ 10:34 pm - Written by BawldGuy
This week there were a handful of phone conversations about the subject of getting rich quick, no-down investing, ‘we’ll provide support’ blah blah blah seminars, infomercials, and the like. Half of these conversations concluded with me bearing bad news. They’d been given bad advice, and there was essentially nothing I could do or advise which would come close to solving their problem.
They’d been lied to. Is there a bigger lie than telling folks they can get rich quickly while putting no money, expertise, or work into real estate, without even giving lip service to the concept of cash reserves? It’s one thing to make a judgment you regret. We’ve all done that — I know I have. Lost the property too.
But to lie to folks who’re simply looking for a way to grab a piece of the pie for themselves? The cherry on this literal mud pie is that so many people paid for the DVD or seminar — they paid to be lied to. Yet when they find themselves under 20 feet of financial water, the so called ‘get rich quick’ expert is long gone. No support, no help, not even a shoulder to cry on.
I’m here to tell you in plain English — In real estate you’ll get rich with a lot of hard work, some anxiety, a lot of capital, a ton of paperwork, and risk. There will be ups and downs. But in the end, if you’re not greedy, and you follow the principles of investment physics and the physics of economics — Lord willin’ and the creek don’t rise — you will become wealthy and live to experience a magnificently abundant retirement.
You’ll get rich alright — but you’ll do it slowly.
Those who tell you otherwise?
Liar! Liar! Pants on fire!
By the way, pay close attention to the video. Who is the young man trying to get into the good graces of the cute blonde? Bonus points for those who guess correctly. Hint: His little brother wasn’t nearly the stud he was.
Posted on April 3, 2008 @ 11:06 pm - Written by BawldGuy
Let’s assume even the greenest beginner would know to stay away from obvious war zones, or highly depressed areas. What might they miss when looking over a potential region as a home for their investment capital? Well, there are plenty of important factors, but one in particular always sends us packin’ for greener pastures.
It’s how the local and state governments view business in general and income property/real estate development specifically. This is way crucial to many of our first impressions of a region new to us.
So what are we looking to find out?
How are landlords treated by the courts? Is it like much of California where tenants nearly have to commit a major felony on FBI video in order to be evicted in less than a dog’s year? Or is it like other states we like very much — tenants are treated fairly and with respect, but thrown out when they violate the contract and the landlord wants it enforced by the courts.
See, when tenants have a soul-deep belief that the courts aren’t disposed to the entitlement approach to landlord/tenant relations, the landlord/owner doesn’t feel like they have a de facto partner. The courts in regions favoring that viewpoint will gently, or in some cases, not so gently, remind tenants whose property it is. There are many states which we don’t even like to fly over because of their attitude toward business, investment capital, and income property owners.
This has nothing to do with politics, as some might suspect. Sure, it’s a political ideology driving both sides of this coin. In the end though, it’s the atmosphere created by government policy, both local and state, that drive the consequences, often times unintended, for business and income property.
If the tenant is looked upon as a victim until proven otherwise, the investor has a problem. Contracts in those areas tend to become lists of suggestions for tenants to consider. I contend contracts aren’t paper analogies for suggestion boxes. Meanwhile, their landlords are often held to a far higher standard.
Why would we purposefully bring investors into that atmosphere? History shows if that approach remains intact and unchallenged for long periods of time, values suffer. Why? It’s because experienced real estate investors don’t like to go where they’re not wanted, or treated unfairly
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An environment friendly to business is essential because your tenant needs a job. Duh. The more jobs, the more demand for your product — a place to rent. While California’s policies chased many businesses to other states, Arizona, Idaho, and Texas to name three, made it clear they were welcome to settle in their states. “What can we do to make you feel more comfortable?” they asked. Why do you think those three states are always among the elite when the lists come out with the best job creating regions?
So when we say we’ve ‘passed’ on a region, ask yourself a question.
What is your perception of that state’s policy towards business? Even during the last 2½ years of sometimes brutally falling real estate values, Phoenix has not only maintained their reputation as a superior job generator, they actually moved up to #1 job generating county in the nation. Businesses go where they’re wanted — and so do smart real estate investors. When this market correction leaves us, Phoenix, in my opinion, will live up to its name. Why? Because they’ve been adding jobs, increasing population, and amassing some serious pent up demand.
Remember, you heard it here first.
If we’re seriously considering taking our clients to a new region, our first test is local and state government’s attitude toward business and investment capital. If they don’t want us, we don’t want them. We don’t mind competing — but we do insist on an even playing field.
contend contracts aren’t paper analogies for suggestion boxes. Meanwhile, their landlords are often held to a far higher standard. 