Let’s face it, human nature sometimes wants to compromise little things they think don’t matter. Thing is, when those itty bitty compromises begin to add up, they gain negative power over you. Over time, do you think they might end up compromising your retirement income? Small compromises add up to one big headache.
Transcript: Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about what happens when you combine a whole bunch of small compromises while you’re investing in real estate for retirement. First of all, we start with cap rates. Everybody wants the double digit cap rate. I’ve talked about that in other videos, but I want to really pound home why high cap rates are usually a myth in real life. They’re in poor areas. They’re high for a reason because smart investors wouldn’t buy them at lower cap rates. That’s the bottom line and then they compromise on location quality. Well, they already did that if they went for the double digit cap rate, but sometimes you get a decent cap rate and you’ve still compromised on the location quality. You don’t want to do that. You don’t have to have my bar. My bar is what I put my mother who just celebrated her 82nd birthday into the property to live alone. Nobody argues with that. They know that’s a very high bar for location quality. I don’t compromise on that. Figure out what yours is. Don’t compromise. The next thing is the age of the building. Now, have I put people into old buildings including myself? Yes, of course I have, but they’re the exceptions that prove the rule. Older buildings get older. If you’re going to retire in 20 years, and you bought a 30 year old building yesterday, it’s going to be 50 when you retire. What do you think the floor plan is going to look like to tenants then? Maybe a little functional obsolescence? Who knows? It’s probably more likely than not. We won’t even talk about how the expenses skyrocket on an older building. You’re really asking for problems. Now, all this ends up with you getting lower quality tenants than you would have had you not compromised on all these things at once, and lower quality tenants end up generating bad results all the way down the line. You have to manage more, or pay more for management, and if you’ve invested out of state, that’s not something you bargain for. In the end high quality clients are the linchpin. You want them to be absolutely there. Tenants who are well employed, who pay their bills, and like your units, those are the people you want. Now, if you compromise on all these things, what you’ve instituted is the virus of long-term decay. Over time all these little compromises take their toll at once and they unite to speed up the process and add velocity to the ultimate fail. You can’t compromise when it’s going to be your retirement income that will ultimately suffer. What really happens here is that if you hold the line, you go for a cap rate that’s reasonable in a very high quality area in a building that’s not older than you are that generates high-quality tenants that like living there, you’ll avoid the virus of decay and your retirement income will show it. Thanks for joining today. This is Jeff Brown the BawldGuy. I’ll catch you next time.