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Buyin’ Shoes At Nordstrom VS Creating A Superb Retirement Through Real Estate

by Jeff Brown on December 11, 2012 · 13 comments

  
retirement

The semi-formal company Christmas party is next week, and your better half — come on, you know you married above your station like the rest of us — tells you to get new black dress shoes. She sets the bar, and sends you on your way, suggesting Nordstrom’s shoe department will probably lessen the pain while shortening shopping time. Works for ya, right? So, off you go.

As you follow this experience, compare it to the first time you went to a real estate agent to buy a long term investment property, say 1-4 units.

Shopping for Your Real Estate Investment at “The Mall”

You arrive at the mall, enter Nordstrom’s, then stumble around lookin’ for men’s shoes. Not wantin’ to mess around you tell the sales guy your marchin’ orders. He shows you where to sit, and before long returns with half a dozen boxes. Included are several styles meeting the parameters made by a few different manufacturers. You try ‘em on, walk around a bit, and pick the pair that’s most comfortable. You grab some polish, pay the cashier and head back to the car. From the time you initially parked ’til the wheels are rollin’ back home was less than a half hour. In another hour you won’t remember the shoe guy’s name and he wouldn’t be able to pick you out of a two man lineup.

Sadly, that describes how most investors acquire properties designed to deliver their retirement income.

I’ve heard this story so many times I can lip sync it. “So, tell me the story of how you acquired your properties, Stan.” “Well, Jeff, . . .” — and the sad tale of woe begins. They had such a good experience buyin’ their home, they decided to use the same agent. After all, didn’t he say he’d sold a few duplexes over the years? Don’t get me wrong, cuz Larry, their agent, was and still is a highly qualified and experienced professional — in the home market. He’s honest as the day is long. But flip a coin to figure out who knows more about investing, Stan or Larry.

And there’s the rub.

Are Your Just Buying Real Estate Off The Rack?

This is when I begin to tell Stan what his initial conversation was with Larry. He told him he wanted to buy a 2-4 unit property in a few specific areas. Larry called him back in less than an hour with five listings in the designated neighborhoods. They looked at ‘em, Stan liked a triplex a lot, and they were off to the races. Stan thinks I’m a seer now. :)

BawldGuy Takeaway: If you know as much or more than your real estate agent about retiring well through real estate investing? The chances of your BigPicture Retirement Plan turnin’ out well are pretty lame. In fact, it’s very analogous to how you bought your new shoes. Heck, even if you screwed up the whole shoe buyin’ scenario, your wife woulda had ya take ‘em back — no harm, no foul. The analogy doesn’t quite extend that far. Go figure.

Truth is, Stan might’ve ended up in spectacular position. ‘Course, it woulda been nothin’ more or less than the luck of the draw. My experience with this scenario is that the vast majority of the time, the results achieved are something less than spectacular, especially over the long haul. The other huge problem is that Stan would never realize — even in retirement — how much better he coulda done. Make that mistake over and over for 10-35 years, and the difference can be staggering, an understatement if ever there was one.

What Could Have Been

In fact, in many cases I’ve been challenged by the client to ‘retrofit’ their Plan, in order to demonstrate what I would’ve advised, along with the inevitable results. Having done it several times, I’ve learned to ask the client if they really, really need to see it. You know, of course, their answer is always the same, duh. Since I’m able to use my knowledge of past markets, not to mention actual Plans/Execution of my own clients, the numbers are pretty much dead on reliable. The clients  know this — especially when they see the numbers and begin wildly crunchin’ on their calculators.

The results of your retirement Plan can’t be retrofitted — just so ya know. 

I realize I’m relentlessly poundin’ the Captain Obvious drum set. Still, as you’ve read this you may’ve of realized I was either describing your own experience, or of someone you know or have heard about. If it’s so dang obvious, why oh why does it continue to happen? For Heaven’s sake it appears to me sometimes it’s the norm, not the exception. Real estate investors — specifically Boomers — simply cannot afford to make this mistake. The factor in this script that’s so insidious is stealth. Unless the results obtained by pickin’ from the aforementioned list provided by Larry were inarguably and almost immediately terrible, most investors would never realize what coulda been — what shoulda been.

Magnificently abundant retirements aren’t found at the mall in the upscale shoe store. They’re custom designed and generated on Purpose, with a Plan. So many have already begun retirement with vastly inferior ‘off the rack’ income. It wasn’t necessary and was so easily avoided. As Captain Obvious begins to smile again, I’ll say it in a different way.

Your retirement ain’t a pair of new shoes.

Photo: Joel Bedford

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{ 13 comments… read them below or add one }

David Shafer December 11, 2012 at 7:33 am

Amazing how many people fail to do their own research, trust folks who claim to be experts, but aren’t, and spend years spinning their wheels before they actually look at the performance numbers. Jeff, you have hit the nail right on the head of how little thought goes into retirement planning these days. I hear about it every day.

Reply

Jeff Brown December 11, 2012 at 9:34 am

Thing is, David, most folks don’t do what you and I do. That is, spend most of our time in that vary research, analysis, and due diligence. One of the main points is that even the real estate investor who spends whatever time they can afford researching, learning analysis and the like, they simply can’t know what the seasoned professional knows.

For Heaven’s sake, look at the questions on your posts. Some of these commenters are wicked smart, AND somewhat conversant with the insurance industry, and they still don’t quite see the subtle, but crucial differences between the various policies. How could they? What you know is at a level most pros in your industry never reach. I know this cuz I’ve talked to ‘em, and wondered how they ever accurately explain things to their clients.

Take your speciality, the EIUL. I’ve know you how many years now? Yet I still did whatever I could do to have you on my team, cuz I can’t do EIULs justice — and that’s with you patiently explaining the intricately complicated mechanics of it to me. :) So, instead of me tryin’ in vain to be you, I send my clients, when it’s prudent and warranted, to you.

I follow my own advice. :)

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Danny Johnson December 11, 2012 at 7:50 am

Well said, Jeff.

This holds true for investors looking to flip properties as well. All too often I hear about someone getting started that has an agent who is going to find them deals. That’s all fine and good as long as the investor is the one figuring out whether it is a deal or not. It’s when people rely solely on the advice of the agent that they set themselves up for disaster.

Great article.

Reply

Jason December 11, 2012 at 8:43 am

Danny,

I think your statement clarifies Jeff’s post. Relying solely on one person to make investment decisions (this includes ourselves) is ripe for problems. I feel I know more about investing than my realtor, but he is still a powerful member of my team. He knows real estate contracts, how to negotiate with other realtors, has many connections, and knows my local market very well. I know my criteria and what is a deal for me.

To Jeff’s point, many folks simply walk in and buy or never buy after months and years of window shopping. They use one point of contact and assume that person knows a good deal. My first two properties are perfect examples of poor performers due to not doing my full research.

Jason

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Jeff Brown December 11, 2012 at 9:43 am

Hey Jason — Here’s an example of what you’re saying. Ever notice how some investors, especially flippers, think their experience qualifies them to make judgment calls at the site. Yet, in my personal experience, when it comes to foundations, almost everyone goes silent. I know I did, and still do. Everywhere I go, I have a foundation expert, almost always a highly trained and experienced engineer, who tells me what we’re lookin’ at.

True knowledge and expertise, particularly when combined with experience, are THE trump cards to have.

Reply

Jeff Brown December 11, 2012 at 9:37 am

Hey Danny — At some point, there better be a real live expert involved. Can’t tell ya how many times I’ve seen flippers who’ve finally attained that echelon, looked back, and wondered how they ever survived.

Reply

Greg Turnquist December 11, 2012 at 11:27 am

Talk about needing experts. If I didn’t have an expert real estate broker, an expert insurance agent, and an expert CPA, my plan would be akin to scrap wood tied together with baling wire and spray paint, i.e. miserable. I need the maximum advantage on all three fronts.

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Jeff Brown December 11, 2012 at 12:46 pm

Amen Greg.

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cher donovan December 15, 2012 at 9:15 pm

Jeff, I shop at the Goodwill. I just bought an appliance which was brand new that sells on line for $50… my price $6.
The trick is that you need to work with a professional like you who knows prices and can spot a bargain…. an under priced property or one with potential to increase value. Or maybe connections with builders who can build to suit.
A good agent is like shopping at the Goodwill and scooping up an item that someone else missed.

Reply

Jeff Brown December 16, 2012 at 9:12 am

Wow, Cher, you’re still the world champ shopper!. Thanks so much, and Merry Christmas to you and the wicked smart guy. :)

cher donovan December 16, 2012 at 6:49 pm

Just a further comment: The best properties are not always the bargains. It how the property fits with an overall plan. And a plan is a must.
Merry Christmas to you too! How come we never run into you at Starbucks?

Jeff Brown December 16, 2012 at 7:01 pm

Different Starbucks now. :) Baltimore/EC Blvd. Let me know and we’ll meet.

Reply

cher donovan December 16, 2012 at 7:16 pm

Hey great!. I’ll let you know when I can get the wicked smart guy together.

Reply

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