What’s An Aggressive Real Estate Investment Strategy? According To Whom?
Posted @ 11:22 am - Filed under Real Estate Investing, Check This Out, Retirement Income, Sominex Account, Communication
Had an interesting conversation today with a very cool client. 
She’s a first grade teacher here in town. At 50ish (for a couple years now) her only retirement is a semi-worthless annuity, and a relatively handsome pension from her ‘teacher’s fund’.
She’s gonna be buying some income property, almost a million bucks worth. The contracts are signed, and the lender dude, some guy with suspenders, from Philly, says she’s good to go. The transactions are structured as follows.
10% down payment + reduced closing costs, as she’ll receive credits Fixed rate amortizing loans at 6.25-6.5% +/- .25% Close analysis shows each property pays for itself easily, plus a little cash flow She’ll max out on tax shelter — resulting in about $625/mo. tax savings
She has a Sominex Account (Ambien for those under 40) of over $40,000 — all of it liquid. Don’t forget her worthless (her words too) annuity, which could fetch, after penalty, another $40,000 or so.
The point — points?:
Four small and well located income properties, all with itty-bitty cash flows. Between the four of them she’ll receive roughly $4-5,000 a year — or not as the case may be. When cash flow is that close to the bone we usually say break even to a trickle.
The maximum tax shelter allowed by the IRC. She’ll increase her take home pay by $500 monthly almost immediately by increasing her exemptions at work.
Over the five years or so she may hold them, her loan balances will have been reduced over $55,000.
Note: We tell all of our clients to condition themselves to respond to the words ‘break even’ by saying to themselves — Liar! This underlines the real world truth, that no matter how conservative we are in projecting income, expenses etc., nobody is so good they can predict cash flow to the dollar. That’s what you do when you say a property breaks even — Liar!
She had it in her mind I was being relatively aggressive with my approach to her retirement. Why? Cuz I told her so. Apparently telling women over 50 you’re being aggressive tends to stick. She was getting a tad nervous. Of course she was. Her investment guy needs to choose his words much more carefully.
It reminds me of what Dad used to say on the subject. “Sometimes folks put the emphasis on the wrong syl-LA-ble.
Effective communication can at times appear to mimic a minefield of potential misconnects. If the speaker or the listener put any particular word or concept in a an unintended context — the rest of 
the conversation potentially becomes virtually moot. It’s my experience the 80/20 rule applies. That is, 80% of the time it’s really nobody’s fault. Hundreds of ‘postmortems’ performed on what I’ve come to refer to as communication train wrecks, happen when all parties had great intent, and were paying full attention. Human beings aren’t computers. Context is the wild card. While everyone’s busy nodding their heads in agreement, one is seeing a picture of sunlight while the other is painting a picture of rain clouds. It happens.
It took a few minutes explaining — again — about what was happening, and what she could expect. She then returned the lender’s phone call, and proceeded to have the same conversation with him. She was calmed by his words, especially as they were layered in her mind over the words she’d just heard from me.
Words mean things, and even when they’re taken somewhat out of context, it’s up to the pro to ensure there’s total understanding of that context. Of course, in reality that is, in the real world, Mission Impossible. Communication is never perfect on a good day. These things happen from time to time. You say one thing to someone and they hear another. It happens.
Over the years I’ve been able to keep miscommunications — outgoing and incoming — to a minimum. Yet it still occasionally happens.
I tell this story to remind you how easily this can happen. Fortunately, this turned out to be a minor episode. Uh, that would be minor in the larger context, but no doubt not minor at all to her. Words do have meaning, but if filed under an erroneous context, it’s possible to find ourselves traveling entirely different roads than those with whom we’re communicating. 
Think of times in your lives when you’ve said or done something while holding a picture in your mind of the context you envision. The kicker is, life often throws us into circumstances in which the context or ‘picture’ isn’t quite what we’re expecting.
How many times have we all done this with our husbands or wives? I rest my case.
This is why double and triple checking to ensure understanding at every turn is the only way to fly. It’s still not foolproof, but it beats the alternative. We all wanna be understood — and we all need to feel we understand what we think we’re hearing.
This entry was posted on Wednesday, January 16th, 2008 at 11:22 am and is filed under Real Estate Investing, Check This Out, Retirement Income, Sominex Account, Communication. 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.