Predicting what we expect to happen, or not, in the future is at best debatable, at worst, comic relief. ‘Course there’s always someone at the ready with the old saw, “…the past isn’t a predictor of the future…’ — which isn’t axiomatic, in my experience. For instance, low mortgage interest rates usually presage an increase in sales volume — more buyers can qualify for loans. Given today’s rates, one might justifiably predict increased home sales.
Not so fast anomaly breath.
Though astute real estate investors are kickin’ major booty, homebuyers are not diving for that next home. Just days from my 41st anniversary in the biz, this is a first. Clients are locking in not only superb properties sporting gorgeous price/rent ratios, they’re landing 30 year fixed rates that are sinfully low. Those in need of tax deferred exchanges are able, for the first time in my career, to literally create their own positive perfect storm.
1. Turbo-charge their capital growth rate, big time.
2. Almost always increase their tax shelter, tenant quality, and location quality.
3. Obtain much more property — generating far more income — borrowing at WAY lower, long term fixed rate loans.
Short Story — Things Aren’t Always What They Seem
John was born in 1935. He found himself 30 years later happily married with a couple kids, a college degree, and a better than average job. He made about $7,000 a year, easily more than the median income for 1965. He owned his home, one he bought in 1960 for about $12,000 or so. Between Social Security, his company pension, the savings account, and a free ‘n clear home, his retirement looked solid to him.
Then, one Friday night while enjoying a beer with some buddies from the office, he was kidnapped by the Retirement Fairy. Pure corn, I admit, but go with it, OK?
He was then offered two retirement scenarios — one of which he had to choose before being allowed to return to reality.
Choice #1
An airtight guarantee — he would retire at age 65, in 1990 — with a pre-tax income of $35,000 a year. That income would be his for life, and it would never go down.
Choice #2
He could take his savings, buy the duplex down the street from his home, and keep investing in real estate ’till he turned 65. His retirement income would be generated by his real estate holdings plus his company pension and Social Security.
His Decision
Given the guaranteed income in his first option was fully five times his current annual income — which was, remember, significantly higher than most Americans — he chose to go with Choice #1.
Seems reasonable, doesn’t it? If somebody came to you when you were in your 30′s and made the same offer, what might you do? Before you answer, possibly too quickly, let’s examine the down and dirty results John’s lived, and continues living since he retired back in 2000. He’s now 75 years old, and healthy as a horse.
His after tax income is, to be generous, about $30,000 yearly. But you know he’s not netting that much, right?
How’d you like to be living his life about now?
Here’s a thought: Pick Choice #2.
I wonder at what age it dawned upon John that he’d chosen, um, unwisely?
How have you chosen, so far?
Call me at 1 (619) 889-7100. Let’s talk about the options on your personal menu. Have a good one.
Related posts:
- Real Estate Investment Is A Novel — Treat It As A Short Story At Your Peril
- Over 50? Smile — You Can Still Generate Retirement Income Through Real Estate
- For Real Estate Investors – What’s Your WHOLE Story?
- The Nuts & Bolts Of Retirement Grandpa Didn’t Tell You — It’s Double Coupon Day!
- Sometimes Incredible Things Happen To Those With A Plan — A True Story
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