The Inconvenient Truth For Real Estate Investors Everywhere
Posted @ 11:39 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, Market Correction, Investment Lessons, Leverage, Capital Growth, Predictions
Living in Paradise, uh, San Diego, brings with it certain obligations. Today brought one of them — Cinco de Mayo. You will have lunch or dinner, sometimes both, at a local Mexican eatery. It’s the law. Fortunately, you can’t swing a dead cat in San Diego without hitting a Mexican restaurant, and most of them are decent to pretty dang good. The Boss called saying we were having Mexican food tonight, so guess where I just came from?
Eat yer heart out, Chris.
She asked me, as is her special talent, what was the most obvious change we may be seeing in the future of real estate investing. Come on Honey, I’m havin’ chips ‘n dip with a forklift sized plate of enchiladas suiza on the way. (Sad pathetic face.) Pan to The Boss throwing her rolling eyes, ‘what’s yer point?’ look. I immediately went into my response.
Upon hearing me out, she suggested a title including the phrase, ‘an inconvenient truth’ which I immediately liked.
It’s been said here before, but bears repeating, as it’s that important. Since most of both coasts discovered real estate, it’s march upward has been unfettered even by periodic downward quakes. This isn’t a revelation to any but the most cloistered. The home I listed my first day in the business for $18,100 would sell today, even post correction, for nearly half a million bucks. That’s a fairly impressive net gain for 38 years of ups and downs. Seems in the long run, the ups held sway over the downs. Go figure.
This historic truth will repeat itself even after what we’ve experienced the last few years. Every market correction is looked upon as ‘totally different’ than the last one, which is of course, a stellar example of what Oscar Mayer sells.
Invest in a California income property any time in the last 40 years, say 2-4 units, and you did well. It was only a matter of when, and how much your net worth shot up. I use this much overused phrase with ample forethought — real estate investors will be living in a decade long, (longer?) paradigm shift, as it relates to long term property appreciation.
Investor expectations should now shift radically. Instead of the mindset of a stud racehorse, think Budweiser Clydesdales. Both are gonna get you where you wanna go. The problem is this paradigm shift has put your racehorse out to pasture. Instead of finding yourself at the racetrack for your investments, think peaceful country dirt roads, lined with gorgeous trees, making your longer trip still enjoyable.
For those with foresight this will bode well, as there have been other changes to the real estate investment landscape which are much more palatable. For instance, the ability to apply prudent leverage while using Grandpa’s beloved fixed rate loan. It’s the best of both worlds, and tends to turbo charge the new lower appreciation rates of our future. This correlates directly to relatively impressive capital growth rates, which are, by the way, more important by far than appreciation rates. That’s not just news, it’s great news. Capital growth rates can now be more reliably predicted — and that’s a good thing, know what I mean, Verne?
Still there will be those for whom the wagon pulling Clydesdale reality won’t sit well. They’ll do whatever they can to find what they hope will be double digit appreciation. My crystal ball is as cracked as everyone else’s so I surely won’t say they can’t find that scenario. Just don’t put your life savings on that bet though — in my humble opinion. 
This new paradigm, slow but steady growth, is the Inconvenient Truth plaguing so many real estate investors lately. My advice? Turn the page and do what Mom told you when your first girlfriend left you for the kid with the cool hair. Get over it.
Inconvenient it may be — but in my opinion it’s gonna be our reality for quite some time. It’s been the ongoing reality for much of ‘fly-over’ country since forever. Anyway, I’ve adjusted and found how to take advantage of it. Those who can’t or won’t adjust are merely delaying the inevitable. Those in San Diego and markets like it, will literally cost themselves hundreds of thousands of dollars in lost capital growth by hoping the old ‘norm’ will come back to them.
It’s been my belief for quite some time, that one of Brown and Brown’s best qualities is the ability to first recognize market shifts, and then figure out what adjustments will be needed to positively benefit from the new realities. Those who refuse to see changes for what they are, and make the required modifications to their approach, will literally suffer financial loss — even if only through lost opportunity. This can be based on geography, financing, property type, or, as in this case appreciation rate.
Don’t lose out on the new opportunities throwing themselves at you. With change comes opportunity. This is the dawn of new opportunities. The faster you deal with the new facts of life, the sooner you’ll be able to positively turn the tables to your long term advantage. The sun is just now rising on your new options.
Slow but steady growth for the professional real estate investor is not bad in any sense of the word. It’s actually nice to see the countryside ‘cuz yer not racin’ a million miles an hour up appreciation hill. Yer still gonna get there, just not as quickly. But I promise you you’ll enjoy the finish line just as well as if you’d raced to get there.
So enjoy the journey, and don’t look at this new reality as inconvenient — ‘cuz no matter how you slice it, it’s still truth, inconvenient or not.
Look at it another way.
Five years from now when your hopes for the gold old days have disappeared totally, you’ll be facing a different Inconvenient Truth altogether. How will you make up for all the gains you never realized?
The long term view is more important than ever now. Don’t allow what you want to happen get in the way of what is happening. Turn it to your advantage. Hey, wait a second. I have a great idea. Yeah, that’s the ticket.
Email me through my Contact BawldGuy widget thingy. Let’s talk about your retirement goals. I’m a good listener, and love creating new Purposeful Plans. Come on, click the dang thing. 
This entry was posted on Monday, May 5th, 2008 at 11:39 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement, Retirement Income, Market Correction, Investment Lessons, Leverage, Capital Growth, Predictions. 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.