Investing Without A Purposeful Plan – Are You At Risk?

Posted @ 10:56 am - Filed under Purposeful Planning, Real Estate Investing, Retirement

So one of your smoke alarms starts its annoying chirping — the battery is low. Crud. If you have pretty high ceilings, as many of us do, this can present somewhat of a challenge. Do you have the tools for the job?

Apparently Jed didn’t. As a Boise based mortgage broker he’s one of the best, but handy in the home? Not judging by this evidence.

As you can see, he decided a good night’s sleep, and his family’s safety won over his desire to avoid risking a broken neck. Admirable Jed — but I bet you’re now searching for a better way of taking care of business next time.

Looking at Jed about to scale the heights in search of family security, it serves to remind you of the point in some investment scenarios when you have the chance to say, “Naw, I don’t think so — we’ll pass this time.” Or you can find yourself risking your neck doing what you’re not either prepared to do safely, or don’t have the tools available to do the job, or both. Jed decided to go ahead anyway.

This is a great analogy to investors trying do what their investment advisor does on their own, or by reading a book, or ordering ‘how to’ DVD’s — because after all, how hard can it be, right? I’ve bailed folks out of $0 down deals, buying where they shouldn’t have, or what they shouldn’t have. Why? Because they just wanted to do it themselves. The worst scenario is when they’ve enjoyed moderate to great success in up-trending markets. They didn’t realize until way too late — that same ‘great market’ had been covering up their sins.

In my first hand experience, these folks are pretty bright. Innate intelligence however, doesn’t transfer based on observation, reading, attending a seminar or two, or because ‘it’s all about leverage’ or ‘all about (1031) tax deferred exchanges’ — because it’s not.

Now, to be fair to Jed, if he’d have fallen the odds probably favored him avoiding fatal or severe injury. Here’s what really faulty planning looks like. I wonder what the real estate investment analogy would be for this guy?

Jed’s predicament atop that rickety setup illustrates clearly how that kind of thinking sets you up for a potentially nasty fall.

True story — I’ve seen an investor, after experiencing huge success, decide they could do things on their own, cast off their advisor, and ride off into the sunset. In less than two years they lost, literally, seven figures. They also blew up their cash flow, had to deal with consistently vacant properties, and now find themselves, figuratively speaking, on their living room floor with a broken arm, a severely twisted knee, and a ladder on top of them. The lost cash flow, capital growth, and growth not realized due to their inability to exchange up to other growth regions, has now approached a total of two million dollars.

Have you put yourself up on that investment ladder with Jed? Don’t panic. Here’s what you don’t do. Don’t figure out how to get yourself down safely on your own. That’s what got you up there in the first place, remember? I’ve seen some so called solutions make things almost infinitely worse.

Get someone to secure that ladder, (Which isn’t even spread out all the way, since the size of the table wouldn’t allow it!) and climb down slowly and safely.

Finally, there are those who just don’t know what they don’t know. I meet them from time to time, and listen to them tell me how their particular investment approach will produce much better results than their investment buddies. Occasionally it turns out to be a real doozy.

Here’s what the following true story looks like on a ladder. You just can’t make this stuff up.

How ’bout the woman who refinanced her home to buy her first fixer, then decided she could do two. She had no experience whatsoever, but, (wait for it, here it comes) how hard could it be, right? Right. So now she’s in the middle of two fixers and runs into problems for which she was totally unprepared. Imagine that. Because she had world class credit, she went to what she called her back up stash — plastic. Over $80,000 later, she was done. The problem was — what a sec, did I mention she bought the fixers with no down? So now, even though she’s in a fairly decent market back then, she can’t refinance with decent rates because she has two vacant homes, almost a hundred grand in plastic debt, and debt service on the homes way more than market rent would come close to covering. This doesn’t take into account her fix-up costs going way over budget because she over did it big time. (everyone thinks they’re an interior designer) In essence, her naive approach ate up most of her potential profit. But the homes really looked good.

She ended up selling both of them, netting out enough from both to go on a weekend getaway to Yuma — by bus. Of course, that’s when she came to me, through a friend, to figure a way out — she hadn’t made enough to pay a cent on her newly acquired plastic debt. Her credit rating, though not in free-fall, was headed for urgent care.

It took us about a year and a half, but we fixed it. We ended up finding her some real money making properties that increased her net worth more than she dreamed possible. Over time we eliminated the plastic debt. The end of the story you ask? She went out on her own again, because she now knew what she was doing. I assume, since I haven’t heard from her, that further disasters have been avoided. Of course, it could happen any day now — market corrections have a way of weeding out the do-it-yourselfers.

What don’t you know? And then ask yourself the most important question. Are you at risk because you don’t have a Purposeful Plan? Or worse, is your Plan based on what you think you know?

Thanks for the inspiration Jed — you da man.

This entry was posted on Saturday, June 2nd, 2007 at 10:56 am and is filed under Purposeful Planning, Real Estate Investing, Retirement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.