Buying Income Property - Bawldguy Talking

By: Bawldguy  09-12-2011
Keywords: Real Estate, Real Estate Investors, Real Estate Investor

This will be short and sweet for a couple reasons. First, tonight’s post is over at BiggerPockets Blog. If you’re not acquainted with it I give my full and energetic endorsement to it. I’ve been writing there for a couple years, or at least in a few weeks. It’s the best membership site for real estate investors in the country.

BawldGuy Heads Up: Tomorrow (Wednesday) I’ll be out of touch with the world completely. Gettin’ some dental work done, and they wanna knock me out to do it. Works for me.

I’ll be available for calls beginning at noon Thursday. ‘Course by then I’ll be Jonesin’ for a fix. You can help me with that by callin’ me at 619 889-7100. Or you can, if you prefer, send me a note using the Contact BawldGuy button up top. Have a good one.

Multiple times on these pages I’ve made mention of the sometimes unintended communication glitches caused by the differing nomenclature used by lenders, escrow/title officers, and guys like me. It can be fall down funny, but it can and often does create very real misunderstandings.

For instance, how ’bout fire/liability insurance? It’s an operating expense every income property owner pays. No mystery there, right? Wrong, premium breath. It’s listed both in the lender’s GFE (good faith estimate) and the escrow officer’s trial closing statement — as closing costs. This plays monkey-on-a-cupcake havoc with buyers. It happens with a few different items. It also tends to inflate what’s expected by buyers, who wonder — why are my closing costs so high?

BawldGuy Here: This post is exactly a year old. Yet I still get folks falling into the internet research trap, calling me almost weekly. Somebody’s boots need to be on the ground. This is why I spend so much time on the road, people. Anywho, I thought this was the perfect time to remind my readers of just that. Hope it helps.

It used to happen sporadically, but now? Seems like almost, but not quite a daily occurrence. A real estate investor will spend an impressive amount of time researching a particular region, often drilling all the way down to a smallish area inside the region. What with all the options Google provides these days, the depth and breadth of data available can be mind boggling.

It can also be, to use a technical real estate investment term, pure crapola.

BawldGuy Here: I first published this piece about six months ago. I was thinkin’ it was time to put it up top again. Hope it sheds some light for ya.

There are multiple schools of thought related to investing in real estate for retirement. Two dominate.

One says you buy property, holding it forever. When you’ve saved sufficient capital to buy additional property, you do — then hold IT for evermore too. The idea is you allow rental income to pay off debt as quickly as possible, arriving at the point of a debt free cash flow machine. Do this a buncha times and you’ve built the foundation for a nice retirement income stream.

Or so the doctrine goes.

I thought it was perfect timing to republish this post, given the recent conversations I’ve been having. Anywho, I had fun writing it, and I think it will resonate well with real estate investors everywhere. Enjoy.

Over the years, counting all-star teams, I’ve coached about a dozen youth baseball teams. They ranged from eight years old, to high school age. Every team had it’s own personality, it’s own way of winning. ‘Course, some won more than others, though thankfully, I can say not one regular season team ever placed lower than 3rd. Coupling a given team with the right strategy was the first goal of every season. While one strategy will work exceedingly well for one team, it’ll prove the recipe for disaster for the next team.

My last Little League team lost but one game. They were awesome. But when the season began, the team’s manager insisted on batting my son in the cleanup position. His thinking was that the big home run hitter, the RBI guy, should be smack dab in the middle. it’s a common error in strategy, though not always. See, if we’d have put him 4th in the batting order, they could’ve more easily ‘pitched around him’, as those hitting after him were significantly less of a threat. He was, um, unimpressed with my suggestion. Then I convinced him with these examples.

Short ‘n sweet tonight. I’ve seen a few of these markets. None of ‘em were part of the perfect positive storm we’re enjoying now, but prices were in relative free fall, and opportunity was THE word — if you had the wherewithal.

What so many ill-informed investors are doin’ today was done in the downturn of the early 80′s and 90′s. What was that, you ask? Chase price, grind sellers to the bone, anything to walk away grinnin’ from ear to ear — all while ignoring axiomatic, timeless truths. But then when things got better, some of those ‘buys of a lifetime’ became instant artifacts of Planet Mediocre. This proved, um, irritating to all those who’d basked for so long at neighborhood BBQ’s in the warmth of the glory heaped on ‘em by friends and relatives also impressed with such ‘great’ deals.

Several times a month a reader, or maybe a client referral will gimme a call and a great fix by asking if I could, “just tweak our plan a bit to make it perfect.” So many times they’re under the mistaken belief that owing to (Stellar pun, Jeff.) the fact they own a $300,000 income property debt free, their retirement plan is only subject to minor adjustments. Sometimes that’s the case, though in my experience rarely. The answer to my follow-up question dictates my advice.

How long till you retire?

The latter part of this month has seen me forced to invoke my ‘No Sominex Account — No Client’ policy three separate times. They all understood, and I’m still makin’ myself available to them. But till they put away sufficient cash reserves, my firm, Brown and Brown Investment Properties, won’t represent them. I thought it timely and very appropriate to republish a long ago post on the subject.

It’s a perfect time to revisit the concept of cash reserves, which as regular readers know, is called a Sominex Account here. Sominex is a brand of sleeping pill. Get it? A generous cash reserve account allows us to sleep even when life’s little surprises land at our doors. Of all the factors involved in real estate investing, cash reserves almost always get short shrift. As an integral part of every Purposeful Plan, cash reserves cannot be ignored. It’s easy getting caught up in the various opportunities these days. In a market such as today’s, investors tend to get not only a false sense of security, but superiority. Memories are short, aren’t they?

Based on a couple recent cases in which I’ve been called in to consult, I felt it apropos to reprint this post from the archives. Does this sound familiar to you for any reason? Remind you of anyone you might know?

Avoid this approach like the plague.

As a teenager I’d lost a sale because the buyer thought the seller was making too much money. Seems he’d researched what the seller had originally paid for the home, and was aghast at the price from which the seller wouldn’t budge. A price, mind you, for which I had abundant evidence was very reasonable.

Can’t tell ya how many times readers have called, wanting me to take a look at their Vegas or Florida portfolios. They bought ‘em ‘WAY below market, so we’re OK’. Though I remain measured and as helpful as I can possibly be, the only thing I can honestly tell them is to Get Outa Dodge! and do it by 4:30 yesterday afternoon. Well, now I have more backup.

Florida, with nine markets set to tank even more than they have already.

Oh, and who was predicted to be the second worse in the country? The darling of ‘Price Chasers’ everywhere? None other than Las Vegas. If you think their casinos are the fastest way to lose money, try their real estate.

How do ya make a small fortune in real estate in Las Vegas?

That’s easy — ya start with a big fortune. Badda boom!

Then there are those who, for some reason, inexplicable sometimes even to themselves later on, can’t resist wading into the quicksand that is much of Florida’s market. For some, price is the ultimate seductress.

I know, it was a lesson I also learned the hardest way back in the day.

Don’t be tempted by price alone. It’s the reason much of those who’re wondering what happened are treadin’ water — even though they ‘bought WAY under the market’.

I’m beggin’ ya. Step away from the red tag sales till ya know exactly where the quicksand is. Investing in real estate based upon price alone will leave you exactly that way — alone.

To all the dads out there — Happy Father’s Day from the bottom of my heart. The country salutes you for having stepped up to the plate so consistently. Gimme a call and we’ll talk real estate investing while we swap stories about our perfect kids. 619 889-7100 will find me. Have a good one.

Could Case Shiller be mistaken? Of course they could.

The information in this article was current at 06 Dec 2011

Keywords: Dental Work, Estate Investor, investing in real estate, Real Estate, Real Estate Investor, Real Estate Investors

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