Real Estate Investors — Are You In ‘Wait ‘n See’ Mode? Breaking News: Time Ain’t Your Friend

Posted @ 8:41 pm - Filed under Buying Income Property, Economy, Financing, Market Correction, RE investment strategies, San Diego Property Owners

Let’s talk a little real estate history tonight, along with (takes a deep breath) some governmental lessons we’ve already lived through, if not learned from. (That screamin’ you hear in the background is my high school English teacher.) This isn’t a post on politics as much as it’s a review of the litter left on the roadside by history — litter some of us prefer calling empirical evidence.

As I said last night, the ’70’s was the first time economic policy went full speed executing the combination of massive spending + tax hikes + huge increases in our money supply. That troika proved beyond a doubt to be THE slam dunk recipe for record inflation, real estate appreciation not seen in my lifetime ’till then, or since the end of WW II for that matter, interest rates over 15%, and a continued marginal tax rate for the biggest income earners of — wait for it — here it comes — 70%! If you lived in California back then, and found yourself in that tax bracket, you netted roughly 21¢ on every subsequent dollar of income after taxes. In technical terms, I think economists call that a disincentive.

History has recorded the result. A recession lasting years. Loss of jobs, property, and hope so staggering, the ‘Misery Index’ was born. It was the first really bad times I’d experienced as an adult. Compare our status quo now to the economic nightmare of the early ’80’s.

Back then there was rising unemployment, a recession, double digit interest rates, and a mortally wounded real estate market. Now? We have rising unemployment, a mortally wounded real estate market, proposals for higher taxes, and massive new spending everywhere we look. The point is that we appear to have much in common with the period ‘76 through give or take ‘83/84. A mercurial rise in real estate prices followed by recession, and severe lending challenges.

Interest rates aren’t 15% now you say? True enough. But ask the nearest real estate investor the difference between losing a great deal due to high rates, or underwriting so silly even ultra-conservative investors raise eyebrows. There is no difference, as the result is identical — no deal.

Here are the results demonstrated in the ’80’s and the circumstances preceding them in the ’70’s. Do they sound somewhat familiar?

High marginal tax rates — rising rates on capital gains

An unreliable source of real estate financing

High unemployment — still on the rise

Massive government spending — with no end in sight

Historic increases in the nation’s money supply

A gravely wounded real estate market

I now quote a relatively (couldn’t resist) credible source on the subject of insanity. Einstein put it succinctly when he so pithily said — “Insanity: doing the same thing over and over again and expecting different results.”

Under what rational school of logical thought does anyone think we’ll end up with different results this time out? Please, don’t answer, as it’s a rhetorical question.

Here’s where I bring up two very important factors which are currently in play — only one of which was existent in our historical example. First, regardless of what the LameStream media would have you believe, real estate remains fiercely local in nature. What’s true in San Diego can be almost foreign in another region. This isn’t opinion. While Las Vegas is floating face down in the water, some selected regions are producing very solidly positive fundamentals — a result which still acts as a siren song to prudent real estate investors.

Second, the status quo in which we currently exist doesn’t include, at least for the moment, double digit interest rates. Hence the window I wrote of last night. That window has a shelf life people. Those in ‘wait and see’ mode will find themselves up the river without a paddle — or newly acquired income property with rapidly rising net operating incomes and low fixed rate financing.

Those who took advantage of this same window back in 1979 soon found themselves in an atmosphere of upward spiraling rents, crashing vacancy rates, and ever increasing cash flow.

I dunno, sound OK to you?

It’s time to move it or lose it people. Tick tock.

Take a minute and give me a call. One thing most folks tell me is how they learned answers to questions they hadn’t known to ask. 619 889-7100 will find me. Have a good day.

This entry was posted on Wednesday, July 15th, 2009 at 8:41 pm and is filed under Buying Income Property, Economy, Financing, Market Correction, RE investment strategies, San Diego Property Owners. 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.