12.26.14 Book Review: Buy and Hold Forever

The book I read for November is Buy & Hold Forever: How to Build Wealthy for the 21st century by David Schumaker. I think I really liked it, because I keep suggesting that people on the forums read it. It is a bit of an older man ranting about politics, the economy, and other issues, and I don’t think you could replicate his success today, but he has just an interesting story and perspective that I think it is worth a read.

His premise is to buy in appreciating areas and hold them long long term. He sees investing in real estate as a way to outpace inflation and to force savings (since it is harder to liquidate than other investments). But, he points out that you need a compelling objective propelling your investment decisions to be successful. Borrowing money and having tenants pay it back is a sure way to build wealth.

He points out that Will Rogers said “the best thing to do is to invest in land because they aren’t making any more of it.” The authors experience is in southern California. He focused on beach areas where land was scarce rather than the dessert sprawl areas where land would not be scarce for a very long time.

If you buy in areas of potential growth, you don’t need to find bargains. He is even willing to accept negative cash flow in the beginning of an investment. If you know an area well and know it is growing, that knowledge is worth more than money.

The author’s criteria is as follows:

• an area that has bottomed out and is likely to grow
• high quality schools, transportation, and shopping
• substantial and diversified employment opportunities
• enough streets, schools, utilities, etc. to meet growth
• purchase properties close together to make them easier to care for 
• cities responsive to zoning changes

For a new investor he recommends investing in established neighborhoods rather than new construction, since you can’t see the direction of the neighborhood in new construction. He also preaches to avoid balloon payments at all costs, calling them “debt bombs” that can explode at the worst possible time. Starting out, he lived in his cheapest units and funneled all his funds into the rental units rather than his lifestyle.

Like us, he started out doing the work himself; when just starting paying for all the professionals is expensive, and it’s good to learn the business before outsourcing. Also like us, he focuses on his relationship with his tenants. Unlike us, he let the tenants act like they owned the place as long as they weren’t hassling anyone. He keeps rents about 10% under market to attract long term tenants, and generally only raises rents when tenants move out. He listed the biggest mistakes that landlords make as inadequate oversight, sloppy bookkeeping, failing to run credit checks, and holding grudges. He spent some time talking about the attitude of a landlord and how important it is to be flexible and remember the humanity. This book has helped me loosen up a bit with our tenants; it’s easy to be too nit-picky.

He is always looking at what will happen in 20 or 30 years, not the near term. He looks at areas that had similar characteristics 20 years ago and research what growth happened. As an appraiser, he has more insider info than the average investor. He looks at population growth, natural resources, labor supply, tourist attractions, legislative activity, attitudes toward property owners, and environmental restrictions. He shared www.fedstats.gov as a great site to find employment and densitydata, www.epodunk.com to find out what is going on in an area,www.davidtilney.com to find tenant info, www.entrust.com to use a retirement account to invest, www.legalzoom.com for legal info, www.infoville.com to find out about 1031 exchanges.

He ended the book with a wealth of advice. My favorites:

• A sure way to fail is to do nothing
• Experience is better than advice
• Opportunities don’t come if you stop buying

He is about as opposite as you can get to our strategy of buying cheaper houses in low income areas, saying that it is speculative (due to risk of civil unrest, interesting) and hard to operate. He points out that rents can only go as high as people can afford to pay, and we’ve sure seen that. The more popel on public assistance in a neighborhood, the less likely that prices will appreciate. We bought in an area revitalizing, but he says that is a bad plan because it takes eons to see the results (amen!). No matter how much money is put toward improving an area, the community cannot improve and values cannot appreciate until the actions and attitudes of those living in the area improve.

After this book, think I’ll look at future investments a bit differently. If nothing else, strive for more diversification.