One of my favorite transactions ever involved a partial tax deferred exchange; partial installment sale; hypothecation; three states; a Mercedes convertible, and a vacant lot in the mountains east of San Diego. There were four of us involved, all more or less equally skilled, with widely different levels of experience. The Friday it closed we went out to The Charcoal House to celebrate — which was, for the record, simultaneous in nature. That is, every single property involved had to close at the same moment in time. Try that in 1984 — in three states — no cells, no ‘puters, no, well, no nothin’ back then.
A requirement of the exchange was that one of the principals had to come out with a small amount of cash, without having to pay taxes. Geez, what else guys? Ya need an albino llama to go with that cash? We did it through the wonders of hypothecation, using a note he’d carried back as part of the transaction. Problem solved — we all chanted the magic words in unison — and yea, though the light did hide itself from among us, it closed.
We congratulated ourselves, traded multiple insults, then agreed to meet for dinner in a couple hours. I was not quite 33, the youngest of the group, so the target of more than my share of verbal abuse — as it should be. Over 25 years later, I’m the only guy left. But did we tear it up that night, or what?! Can’t tell ya how happy I am there were no such things as flip video back then. Mostly cuz there’s no doubt we committed multiple acts of felony keraoke.
I allowed myself this fond memory mostly cuz of the difference in what’s possible today vs back in the day.
Every loan was like entering the old USSR without ID. Well, I might be exaggerating half an iota, but lenders were cold-bloodedly serious people back then. Nobody said they were OldSchool back then, as that’s all there was. You were OldSchool or you didn’t do much — over and out. You wore a suit ‘n tie, or on casual days, a sports coat, slacks and a tie. As a young whippersnapper back then, very few days caught me wearin’ sports coats.
For the most part back then, real estate investors did one of two things — Buy, hold, refi and buy more — OR — Buy, hold, save, buy more, rinse, repeat. There were the wild few who were serial tax deferred exchangers, many of whom mentored me.
But as time evolved so did real estate investing. In my experience, the change generating the most impact was the creation (through litigation of course) of the delayed exchange. No more simultaneous closings, which oft times resulted in investors/agents/title reps/escrow officers/lenders runnin’ around with their hair on fire. I swear there were times I caught people prayin’ to far away volcanoes, promising their first born if only the dang exchange would close while they were still above the sod.
Now? Simple is the way to go. Complex, sophisticated deals involving everything but Dorothy’s Ruby Red Shoes to make things happen, were a product of archaic rules. Some of us, me included, fell in love with what I’ve termed ‘Kitchen Sink’ transactions. It only took a year or so to realize how silly that was.
The concepts used for centuries to create wealth are still alive and well. Get rich slowly. Understand Murphy knows where you live and will, at one time or another, knock on your door — at his timing, not yours. Make moves only if solid, rational analysis tells you it’s a no-brainer. Err on the side of safety — yours.
But most of all, just keep things simple. There’s no magic in being complex/sophisticated when it’s not necessary. And it’s not necessary most of the time. Seriously, how often is real complexity mandatory? In my practice I’ve found most client Plans call for relative sophistication once or twice in a lifetime of investing.
Honestly, what passes for ‘outa da box’ these days is almost funny. Suffice to say, simple gets it done 90% of the time for 90% of the people. The other 10%? It’s fun for me, that’s for sure. It’s like a person who can dance the tango wicked good, but rarely finds either the music or the partner. But when they do…
Ironically, much of my work entails simplifying what well meaning investors have over-thought. Sometimes this means seeing something they’ve put in place that could literally blow their agenda to smithereens — no exaggeration. I was happy to have done that in the last week or so. It was gonna be a spectacular train wreck — and not a matter of if, but when. I love when I’m called in at the beginning, and not when it’s so late all I can do is grab ‘em and throw ‘em off their own train.
‘Investment physics’ isn’t complicated when looked at rationally. Like gravity, many can’t explain how it works, but they know the results of violating gravity’s law. Jumpin’ of the picnic table? Generally not a problem. Leapin’ off the roof of your two story home? Big problem.
But still simple.
How’s this for simple? Call me — 619 889-7100. I love this stuff, really. Always have. Have a good one.
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About BawldGuy
LOL, talk about no-nonsense. Like most things in life, mastering the fundamentals and keeping it simple will get the job done (and typically faster/easier than ocerly complicated methods). Have a great holiday, Jeff.
Back atcha, Alex.