The Fact Of The Matter Is…

Builders, at least some of them, are demonstrating that Denial isn’t just a river in Egypt.

But why should they be any different than investors in markets like Southern California? If I’ve heard it once, I’ve heard it twice — “I simply am not gonna sell my property for less than it’s worth.” I don’t think you will either. As a matter of fact, I think you’ll sell it for exactly what it’s worth.

I heard that very statement from a very nice, and amazingly asute lady yesterday morning. She wasn’t being emotional at all. Her success in the last few years, has of course been fueled by the cartoonish appreciation we all witnessed. The problem?

The property she won’t sell for a penny less than $XXX hasn’t sold since May. I told her either she is over priced, or if that isn’t the case, her broker ain’t gettin’ it done. She said her agent is pretty good. I’ll accept that — but you can’t have both. 98% of the time, if indeed your agent is solid, almost four months on the market might just mean the property is priced too high.

“But we reduced it twice!” Really? What’s your point? The buyers are apparently unimpressed — in droves.

Before I continue — did I tell you she was willing to eat a grand a month in negative cash flow to keep the property for another three years? In the investment game we call that an alligator. She figured, (maybe correctly) that in three years the market would be better, and she’d get a better price. The $1,000 a month out of her purse? She didn’t even blink an eye.

The lesson here: 25-70% equity in investment properties located in moribund areas are like canoeing with a concrete block as cargo. Prudently increasing your leverage (different levels for different investors and areas.) while simultaneously doubling, or sometimes even tripling your total property values will act as a turbo charger to your capital growth rate. The higher the equity from which you’re trading, (leaving) the bigger the hit for your capital growth. Those who choose to wait their high priced market out hoping for appreciation to return will find the demand is less than they’d hoped. Make your move now — 5-10 years from now you’ll be at the backyard BBQ braggin’ about how you made this move under the radar when prices were pretty low.

Here’s what I told her. You’re enormously successful as a business lady and real estate investor. Your net worth requires two commas. Listen to the following numbers — I’ll be brief

If you take $50,000 less, your equity can still get you into a million bucks in growth-region properties via the execution of a tax deferred (1031) exchange. If those units don’t go up an inch the first year, you’re at least not out the $12,000 negative cash flow. If they go up just 5% you’ve made — wait — here it comes — $50,000 in capital growth. Either way you’re better off because you know So Cal is gonna be one of the last places to come back. (Not to mention an extended hold of three more years has a price tag of $36,000. So even if the property appreciated that much, she’d only be even.)

Can you say Purposeful Planning? Her businesses produce so much income, she could very possibly be the rare exception to the Sominex (Ambien) Account rule.

However, areas like Kansas City, Denver, Boise, parts of Texas, parts of North Carolina, (and others) will begin to visibly appreciate before most of the country.

This lady is in her early sixties with the mind of a 40 year old, and has energy to burn. She’s been buying and selling properties, (fixing some) and selling them — so she could pay taxes. (?) We’ve had two short conversations so far, and already I’m already in the starting blocks eager with anticipation at what she can accomplish in the next several years. She said she’s like my mom, who’s 76 and still working. (By the way, it was lunch at Mom’s today!) She said she’ll never stop working. She’s scary good at making her businesses pay, and really enjoys her work.

In the five to six years we had silly price run-ups I’d guess she’s made a few hundred grand net, buying and selling real estate.

Even with relatively far lower annual appreciation rates over the next decade, I wager she’ll at least triple what she did the last five. I think she senses that too.

She’s a very smart lady with a nearly vertical learning curve. Lord I love this part of the business.

I hope we get to work together. I know one thing, my wife already loves her — and as most of you know, wives are very rarely wrong.

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