This month I’ve spoken with more investors owning property in more or less moribund markets than the entire first quarter. I say moribund ‘cuz a common thread found in the descriptions made me think of the phrase, ‘at death’s door’. I know some of these regions, and the description fits some to a ‘T’. Some of these areas are pretty down, but have cause to at least have rationally founded hope.
These investors ask the question — How do we regain the momentum we had for so long? It’s not like we ever experienced double digit appreciation, but at least it was a steady march up in value. What can we do?
The answer for most of them is to take a step back and look at their specific circumstances as objectively as possible. They usually chuckle when I pass that nugget of wisdom to them. After all, they’ve obviously already done that, and concluded, at least temporarily that they’ve put themselves on an unmarked road to nowhere. That’s called being a little too close to the situation. It’s universal, and we all fall prey to it at one time or another. It’s called human nature.
These conversations sometimes take place with real estate agents asking advice for their clients. They’re home agents, but have done such good jobs for their clients over the years, they’re often asked for investment counseling — advice for which they’re admittedly ill equipped. One such conversation led to the agent encouraging his clients to call me.
They subsequently did just that, and the conversation took place this afternoon.
It inspired me to tell their story, with their permission. They preferred I not mention their state, much less their identities. Anyway, they bought their first investment property, a fourplex, back in 1998. It’s gone up slowly but surely while their loan balance has gone down the same way. If they sold now with sales and closing costs of around 8%, their net proceeds would be somewhat north of $110,000. This would allow them to acquire a few brand new properties in regions currently far superior to theirs.
This news caused them to smile — at least a hopeful smile.
Then they asked the inevitable question — “I suppose the next thing yer gonna tell us is to ‘Get Outa Dodge’, right?” Now it was my turn to laugh not chuckle. They said they were regular readers, and now they’d provided evidence. They even added the comment about using a tax deferred exchange as their vehicle of choice.
Yeah, that’s exactly what I’m gonna tell ya. But as I said it, the realization hit me — they already knew what they needed to do if they were indeed serious. They were showing signs of having contracted the dreaded, ‘I gotta stay local’ syndrome. Even though they know fer sure their market offers little if any real future, especially for capital growth, they needed that feeling of control local property offers. Seriously, the chart for capital growth needs to be increasing over time, or something needs to be adjusted. Out of state stuff? Are you kiddin’?
Nope — not kiddin’ whatsoever. In fact if you don’t get over it, you might as well get used to the idea of working well into your golden years, ‘cuz yer not gonna retire on income produced by your sickly market. Again, they know this is absolutely true, yet it’s so ingrained in most of us to want the control local investments can give us.
The cost of yielding to that need can be staggering.
In the next 20 years, (these couples are in their early 40′s) the decision whether or not to take their moribund investment capital to a vibrant, growing region will foretell the quality of their retirement in a literal sense. A tax deferred exchange executed now will result in a relatively impressive turbo charging of their capital growth rate — which is the name of the game for these folks.
I did some numbers for them. They literally were stunned into silence as they perused the email bearing their two futures in cold digits. It wasn’t even close, and I was using their lifelong knowledge of their own market. The stark reality was easily discerned. Their retirement income will be superior by orders of magnitude if they move their capital out now. I’m not making use of hyperbole to make the point, far from it. It’s like having to mow a ginormous yard. Do you prefer Grandpa’s old lawnmower , or a cool sit down model?
When a real estate investor doubles (sometimes more) the annual rate at which their capital grows, and do this for a couple decades, the impact on the ultimate size of their yearly retirement income can be phenomenal. Really?
In their case the difference was just under $200,000 a year in retirement income — the majority of it either tax sheltered or tax free. We weren’t talkin’ chump change here. Staying with the strategy of the status quo was clearly not an option for them to rationally consider. Of course, that made their decision to ‘get over’ their myopic need to stay local a whole bunch easier. (A ‘whole bunch easier’ is a real estate investment technical phrase often used by highly experienced pros.)
The first thing out of their mouths was actually pretty interesting. They’d be retiring on more annual income they’d probably ever make on their day jobs at their highest level. Ironically, this isn’t even rare any more. The ability to use Purposeful Planning toward a reasonably rational retirement goal is often the catalyst in turning around a — here’s that word again — moribund situation. What it really boils down to in it’s simplest form, is common sense, applied consistently for a long period.
If this conversation hits home, there’s an answer for you. You may have to stretch yourself a bit, and overcome the whole ‘staying local syndrome’, but you have a superior future available if you want it. Your first act though has to be in the form of a thought. You must realize your market is your market, and it’s simply not gonna perform well enough to provide the magnificently abundant retirement you’ve dreamed of. The retirement which spurred you to invest in real estate in the first place. You had the right idea, you just have to modify your strategy some.
Contact me and find out what’s possible. I’ve made it pretty easy here on the blog. All you have to do is click on the Contact BawldGuy text, and before you know it, we’ll be talking about getting you the retirement you’ve been picturing all these years.
Go ahead, click it. I can’t wait to talk with you.