Some Much Needed PlainSpeak For Real Estate Investors

Last Thursday’s post pretty much summed up my thinkin’ about what most, not all real estate investors should now be doing. A common denominator found in the daily calls and emails I receive is the ultimate question — What should I do now, if anything?

You may be surprised, or not, to learn that much of the time my counsel is to stand pat, or almost. For the record, ‘Doing something‘ isn’t a Plan. I read everything I can about the economy and real estate in general, and have frequent conversations with those in the business for whom I hold well earned respect. Allow me some relatively unfiltered PlainSpeak today.

I think interest rates for income property will remain attractively low ’till at least the end of this year. I strongly suspect they’ll hang around ’till through 2011. It’s maybe 50/50 for 2012, though my experiences says not to count on that in real terms.

This bodes well for folks who’re in the enviable position of highish equity, but underperforming property(s). If that describes your current reality, run, don’t walk to the nearest phone/computer and call/email me. There’s an 80% chance you should be movin’ that equity to a far more productive region — and should begin that process around 4:30 yesterday afternoon.

If your portfolio isn’t located in one of the ‘safe’ regions, you have roughly 6-18 months to make your move. Again, I think six months is probably in the bag, but anything after that is crystal balling at best. Once rates go up, buyers for these underperforming income properties will evaporate.

Those real estate investors lose — as in their retirement just became problematical.

The mindset of the vast majority of investors the last 50 years has been one of inevitability. That is, ‘I invest regularly, therefore if I do it for a long enough period of time, my retirement will take care of itself.’

Those who continue with that approach, in my opinion, will be sorely disappointed — maybe even bordering on panic — as their rapidly oncoming ‘retirement date’ becomes an ever shrinking dot on the timeline horizon.

Americans have been conditioned to believe that if they put a $5 bill into the ‘investment machine’ $6 dollars will emerge in a reasonable amount of time. Is there anyone left who believes that these days?

To the contrary, millions have learned that sometimes their $5 investment comes back as $3 — or less. The lesson to be learned here, is that nothing, as in zilch, nada, zero, bubkus, is automatic when investing. Though most understand this innately, most don’t seem to invest with that truth firmly in their consciousness.

Somehow the ‘lizard brain’ says money goes in, more money comes out.

Enter Purposeful Planning

If planning accomplishes anything, it’s that we have a point B — which is preferred over the current point A. I know how elementary that reads, but the fact is, most folks’ retirement ‘Plan’ consists of automatic paycheck contributions to something at work. Wanna really raise some blood pressure? Ask ‘em how their plan at the office has been workin’ out for ‘em lately.

I don’t hafta ask that question most of the time — they volunteer their sharp disappointment early on in our conversation.

PlainSpeak — Even a relatively inferior plan — executed well — is better than no plan. Those who still operate on the premise that “puttin’ away money for retirement” will, by the benevolent nature of the universe, result in a workable retirement, are doomed to the whole 9-5 thing for a lot longer than they ever envisioned.

More and more people are now takin’ direct control of how they’re gonna get from today to retirement — an excellent move. Blindly checkin’ boxes at work hasn’t been, um, productive so far.

BawldGuy PlainSpeak

My experience, beginning at the dinner table at 16, listening to Dad talk about his company and the local real estate market, doesn’t include anything remotely akin to what we’re dealin’ with now. That said, unlike the last few down-cycles, this one offers a unique opportunity for regular folk to turn lemons into lemonade. Here’s what I mean in outline form.

1. — Fully 33 of my 40+ years in the biz have come with interest rates of 7%+. Borrowing money to acquire investment property at rates beginning with a ’5′ is literally unprecedented in my adult lifetime — until recently. Grab as much of it as you can — then pay it off as quickly as humanly possible.

2. There will be no return to the normal we used to know. Those rules no longer apply. Real expertise, knowledge, and experience are now necessary to reach retirement with much more than Social Security.

3. More than ever before, real estate investors must divorce themselves from the idea they hafta be able to drive by their income properties. That drive for many will end up costing them thousands of dollars a gallon when all is said and done.

4. Regardless of what Grandpa has told you, time is not, in today’s reality, your friend. The sooner you realize that truth and alter your investment behavior to align with it, the better off you’ll be in retirement.

5. There is a growing minority who will profoundly benefit from buying some, if not all of their income properties for cash — using no leverage whatsoever. That approach used during the previous ‘norm’ was not nearly as fruitful as the employment of prudently applied leverage. It’s now a very effective tool for many now — though not all.

6. When this 6-18 month window closes, those who took advantage decisively will reap inordinate cash flow benefits in years to come. Those who don’t? They’ll be among one of the fastest growin’ classes in America — workin’ seniors. Most of ‘em over 70.

I realize this isn’t what most would like to hear, but as the title says, it’s PlainSpeak. Am I hitting some sore spots in your status quo? If so, call me at 619 889-7100. We’ll figure things out — both of us usin’ PlainSpeak. Have a good one.

Related posts:

1. San Diego Real Estate Investors — Why Did You Invest In The First Place? Exactly
2. Why Do Real Estate Investors Invest In The First Place?
3. How Can San Diego Real Estate Investors Improve Their Current Strategy?
4. Understanding Real Differences — Real Estate Investors Sometimes Gloss Over ‘Difference Makers’
5. How Real Estate Investors Really Get It Done – Attn: Newbies