There are so many factors involved in any given real estate investment strategy. Some are factors, and some are FACTORS. Depending upon the exercise or purpose, we can then divide these factors into groups. Sometimes several. Today we’ll look at what the real estate investor can and cannot control. Then we’ll look at the uncontrollable factors and determine if a given plan may or may not be relying on it (them) for its ultimate success.
This is a crucially important discussion.
Factors under your control include, but aren’t limited to, leverage used; velocity of loan pay down; macro investment region; local location quality (upon purchase); exit strategy; tenant quality; pro management/management style; tactical use of cash flow; and many more.
Factors not under your control (again, a partial list), includes appreciation/depreciation of property value; rising/falling rents/NOI (net operating income); future interest rates; even the mere availability of borrowed money, and a bunch more.
As chronicled here often, I’ve embedded uncontrollable factors in Purposeful Plans countless times, and, knock on wood, with solid results. In my defense, I was relying on what had been a multi-generational trend which held true from the mid-1970s through sometime in 2006. I ended that practice long before that, having decided in late 2003 to exit my local market, San Diego. I thought then that the party was about to end. To be honest though, I never saw how extreme the fallout two generations of significant upward trending values would generate.
But I digress — my bad.
Allowing factors beyond your control to be integral parts of your retirement plan, necessarily puts you on the sidelines — hoping for the desired outcome. In fact, there will be times they’ll morph you into a cheerleader. The most recent example of that was in 2008 when those with retirements riding on the positive results of their 401(k)s were unceremoniously thrown under the bus.
Ever seen cheerleaders when, just before the end of the game, their team leading, the other side scores a heartbreaking touchdown? Think stock market in 2008. Imagine having lost 35-45% of your life savings cuz a cornerstone of your plan called for reliance on two of those factors: A rising market — and one that would not crash.
Oops.
When investing in real estate I offer some suggestions for your kind consideration.
- Do not base the acquisition of any real estate investment upon the assumption of appreciation. Ah ah — just don’t.
- Do not assume ever increasing net operating incomes. Party if it happens, but seriously — DON’T PREDICT IT.
- Don’t anticipate a drop in value as a future ‘domino’ in your plan. That domino doesn’t fall? Then what? Punt?
- Never, as in, NeverEver, rely in any way/shape/form on interest rates. Talk about no control. Geez.
- A monster in the closet is the investor’s assumption of a viable market at or just preceding retirement. Can’t execute THE key requirement to pull your retirement trigger? Why would you do that to yourself on purpose?!
Next week, I’ll demonstrate a specific strategy, empirically if you will, that incorporates factors completely under your control. I’ll go a bit further. We’ll show how incorporating tactics, using factors virtually completely under your control can and will produce the retirement outcome desired.
I’ll go out on a limb and assume that outcome is a large, reliable, and safe retirement income.
Here’s an outcome I’d like — you calling me at 619 889-7100. We’ll kill two bird with one stone. We’ll talk about your retirement plan, and I’ll get a fix. Have a good one.
Related posts:
- Why EIUL? Real Estate Investment Strategy
- What Real Estate Investment Strategy Works In Slloooowly Appreciating Markets?
- Taking Control Of Your Retirement — Words — They Mean Things
- Real Estate Investors – Fear Ain’t A Strategy – Perfect Investment Storm
- A Real Estate Investment Strategy For the Times
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