Whether you’ve invested already, wanna get started, bought at the perfect time, or the day before the market correction began, there were myriad decisions along the way. Those who bought in ’75-’76 did better than they ever had a right to imagine. This happened again in the ’80′s.
21% prime rate, 16.5% FHA — and a top marginal income tax rate of, really, not makin’ this up — 70%. Pause and for a moment ponder that last number. If you lived in California at the time, as did I (blonde hair and all), and you made around $170,000 or more, every earned dollar thereafter was taxed, counting state and fed, at roughly 81%. Put another way, a lotta folks in the chips back then made a decision to stop workin’ once they hit that magic figure.
Ask yourself — would you keep workin’ your hind end off for the honor of keepin’ 19¢ of every dollar you earned? Sounds like one of them there trick questions, don’t it? 
I bring those bad memories to the fore to show how we all act for change, or opt for the status quo based upon what we think is best for us. (Is it just me, or do you sense Captain Obvious lurkin’ somewhere close by?) As a real estate guy this is my sixth recession. They’re all different no matter what you hear. Some have been overwhelming, spirit crushing, slow motion, bankruptcy machines. Others were so relatively inconsequential I had to remind myself we were in one.
This one reminds me mostly of the mid-’70′s slump. Not because of interest rates. Back then they were about 40-50% higher. It wasn’t what happened to values, ‘cuz whatever minor price adjustment existed was hardly noticeable back then. No, it’s due to what I sense is gonna be our real estate reality as we emerge from our present can of worms.
By the end of ’75, beginning of ’76 real estate values begin a double-time march upwards that was unimpeded (not to mention unprecedented) ’till sometime just before Halloween of ’79. Then the roof caved in. Rates almost literally doubled. Not much was selling any more. Uh, not selling as in most sales became almost akin to urban legion. “You here about John’s sale over on Kilborn Street?” Most sales never even sniffed closing. It was my first experience with creative financing. Folks think the seller carrying back some of the financing is ‘creative’. What a joke. If that’s true, then, and I apologize in advance for this, girls’ softball is baseball.
Seriously? We wrote the creative financing book in those days. I saw and learned and did things I didn’t realize existed just a couple years earlier. It was work smart and learn or die.
Fast forward to 1984. Taxes had been slaughtered — cut by just under 2/3 at the top marginal rate. Folks were still on the sidelines though, as rates were yet to hit single digits from their high of 15-17%. Back then, at the tender age (for RE investment brokers) of 33, I was beggin’ clients to beg, borrow, or steal down payments for local income property. Although ’84 was indeed the best year I’d had since ’79, I still was unable to convince most investors it was a stellar time to buy. Back then I was listening to my two main mentors, now long gone, who told me what was gonna happen next.
Boy, were they on the money — pun intended. By ’85 you could see (though to be honest, it was with 20/20 hindsight) values begin to creep northward ever so slightly. The period spanning ’86-90ish was pretty much double digit appreciation year after year. It was never gonna end. Everybody was a genius — just like the period a decade earlier. Make a mental bookmark of that one.
Now for the point made by the title.
In ’75 I was still sellin’ homes for a living, and could barely spell investment. Dad, though, was laughin’ and scratchin’ with his real estate buds at the golf course every day, betting each other how much they were gonna make with the properties they’d been buying. None of those income property purchases cost as much as $30,000 back then. By the end of ’79 those buys had fallen just short of doubling in value.
Dad and his buddies, and me too — bought my first property in ’75 — found ourselves entering the above mentioned ’80′s recession with single digit fixed rate interest rates and LTV’s (loan to value) of not more than 50% on anything purchased in 1975 or so. The exceptions were the props exchanged (tax deferred of course) in the summer of ’77 for more property. Those hit the recession at a maximum of 65% loan to value — also at single digit interest rates.
All this was made possible by one decision. The decision to buy real estate investment property while most folks were waiting for everyone else to start dancing first. You know, like yer first junior high after school dance?
Those who hesitated in the ’70′s missed out on some fairly impressive capital growth. Many decided to jump in with both feet in late ’78 and ’79. The next five years was the longest decade of their lives. Their indecision cost them untold increases in their net worth — and did incalculable damage to their potential retirement income.
Retirement income missed due to indecision.
All because they made a decision — not to make a decision. And as Grandma told us, the consequences of not making a decision are no less empirically measurable than when we’ve been proactively decisive.
In my judgment we’re back in January of 1975 — give or take. Or, if you prefer, 1985. I’ll stick with the former. Many of the factors are eerily similar to the present. Many of the changes coming from the White House and Capitol Hill back then were the same as those expected in the next few months. One of the consequences of those changes back in the ’70′s was the upward movement of real estate values. And yes, the outlook then was as bleak as now. Well, maybe not quite as bleak. ‘Course, if you picked 1985 as a comparison to current events — is coming from 21% prime rate, and 16.5% FHA rates bleak enough for you? It was bleak enough from my vantage point, and that’s a fact.
A decision to either buy your first investment property, or exchange your current equities to better economically positioned regions will have a profound affect, not only on your next decade, but more importantly the ultimate quality of your retirement. A decision to remain inert, doing nothing, but with grave determination, will leave you in the same place as those in similar times past.
Sitting alone one night, wondering why they didn’t invest when it made the most sense. We’ve all suffered from poor decisions. Sometimes the lack of a proactive decision can produce one of the worst consequences of all — that little voice in our heads taunting us — “All you had to do was make a decision.”
Here’s an easy decision for ya. Find a way for us to talk with each other. Hey! I know. Why don’t ya click this and get the ball rollin’? The decision to take the first step isn’t hard at all. One of the soundest decisions you can make is to get yourself a Purposeful Plan. Hello? Click click. Have a good one.
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