What Real Estate Investment Strategy Works In Slloooowly Appreciating Markets?
Posted @ 10:59 pm - Filed under Real Estate Investing, Purposeful Planning, Retirement, Real Estate Markets, Cash Flow, Retirement Income, Investment Lessons, Capital Growth, BawldGuy Axiom
You know the kinda place I’m talkin’ about. I joke about it all the time. Around here it’s known as East Toilet Seat, Wisconsin. Buy an income property there, and five years later it’s either worth the same, or gone up just enough to pay the costs of selling, and break even. Like I said, slloooow. This is why we do so well with investors in those type areas, ‘cuz folks often have capital but no place for it to grow. We make it easy for them to export their hard earned investment capital safely. Makes plenty of sense, but not everybody wants to travel that road. They’d rather stay local. For most that’s a huge long term mistake in those kinda markets. Why? ‘Cuz you’re forced to grow your capital almost exclusively through expertise, technique, and courage.
Therefore, in those markets, any strategy relying upon appreciation in general should be discarded out of hand. It’s a failure just achin’ for a sucker to grab hold.
If it can be reasonably assumed an area won’t exceed 1-2% annual appreciation, here’s what the real estate investor’s lookin’ at.
Buy at $200,000 and hold for about five years at 2% annual appreciation. In those five long years you made a whole $21,000 — and I rounded up. 
After sales costs you can take the family for a week’s vacation to lovely Lemon Grove, California — just a $4 cab ride away from the famous Lips.
Yet at 5% for the same five years, you make over $55,000 — or, put in simpler terms — net of sales costs, your initial capital was multiplied by about 2½ times.
On the surface it doesn’t make sense does it? But in practice 5% vs 2% is analogous to Lions vs the Christians. (I can say that without fear, ‘cuz I’m a preacher’s kid.)
So what do ya do?
We’ll talk about that tomorrow so it can be developed. But it isn’t anything new. It’s just controlling property through either lease options or contracts of sale. (Called contracts for deed in some regions.)
What’s new? That would be the actual growing of your capital in a market devoid of any real appreciation in property values. It can be done, and in fact it’s done all the time by folks just like you. The difference between success and failure in these approaches is the same as in everything I try to impart here: Having a Purposeful Plan.
Again though, I caution anyone considering the execution of lease options and/or contracts for sale. They’re not for wannabes or faux Trumps. You better know exactly what yer doin’ or the market will quickly show you what should have been done instead.
BawldGuy Axiom: Grandma said, “The farmer who plants wheat in the spring is not surprised when harvesting wheat in autumn.” Translation: Invest in real estate located in growth areas, and ya won’t be shocked when yer net worth grows impressively.
95% of people are far better suited for investing their capital wherever the return is best. That requires a growth region. This isn’t new stuff, is it? Capital growth is the engine that drives us to a magnificently abundant retirement income. ‘Cuz when ya boil it all down? All cash flow is, is a yield on capital, right? And the more capital you have, the bigger the yield. DUH moans the crowd. Duh indeed.
So using time and capital growth synergistically will result in a ginourmous basket of capital right about the time yer gettin’ ready to sail into the sunset. What a koinkie dink. Hint: That’s why going for cash flow when you’re far from retiring actually retards what yer building for retirement cash flow. It’s what we in the business call a paradox.
OK, tomorrow we’ll talk a little about my East Toilet Seat real estate investment strategy. (Say that three times as fast as you can.)
Ready to get serious about your retirement? Then this Contact BawldGuy thingy is just for you. Click it. You’ll figure out the rest. We’ll have a very cool conversation about the when and how much of your retirement. Have a good one.
This entry was posted on Monday, August 18th, 2008 at 10:59 pm and is filed under Real Estate Investing, Purposeful Planning, Retirement, Real Estate Markets, Cash Flow, Retirement Income, Investment Lessons, Capital Growth, BawldGuy Axiom. 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.