One of my favorite baseball memories is of my son developing one of the stealthiest pickoff moves to second base you’ll ever witness. He picked off runners who knew about it. Instead of relying on lightning quickness, this move mirrored the strategy of the left-hander’s move to first. The baserunner simply wasn’t seein’ what his lyin’ eyes were telling him. I remember one time in particular, when a former teammate, a fellow pitcher, was in the dugout of the opposing team. Their best base stealer had just doubled, and was eyeing third hungrily. The former teammate was literally screaming from the steps of the dugout for the guy to shorten his lead. Two pitches later he was picked off so badly he had to run to third instead of tryin’ to slide back into second. It was awesome to watch. The runners who figured out that this move couldn’t be read, changed their approach while in possession of second base. This flexibility ensured they remained a threat to score, as even the most stubborn base runners realized the impossibility of scoring from their dugout.
Real estate investing isn’t much different.
In real estate investing, most tried ‘n true approaches, strategies if you will, work — ’til the day they don’t. Adjust, or find yourself makin’ the jog of shame back to your dugout.
An example of what I see as the dearth of flexibility is the almost universal acceptance of the single family residence as the be all end all of investing. Since being first licensed in the fall of 1969 in San Diego, the next SFR I sell to anyone there will be the first. 43 years and not one yet. If they made any kinda sense that wouldn’t be the case. Yet in other markets in other states, SFRs are indeed the way to go. As I’ve said often on these pages: Take what the market gives ya and be happy. What works in one may or may not work in another. Is that Captain Obvious or what? In other words, SFRs work ’til the day they don’t. (What’s the over/under on how long it’ll take for somebody to scream out ‘All real estate is local!!)
Another example is the tax deferred exchange per Section 1031 of the IRC. In the thousands of conversations I’ve had with investors over the years, it was overwhelmingly evident that the 1031 exchange was to be revered, talked about in respectfully hushed tones. In fact, if possible they should be avoided, even shunned. Yeah, I’ve done a ton of ’em, but only when there was no other choice, and maintaining the status quo was significantly inferior to making the trade. Tax deferred exchanges are always the way to go — ’til they aren’t.
Adjust — or Pay the Consequences
As pitchers and hitters must adjust to each other to survive in baseball, so must real estate investors. The ability to adjust isn’t limited to the market. It’s applicable to our overall strategies, our tactics, whether or not to continue flipping and/or investing in a particular market, even whether or not to remain in a previously rewarding market or not. The flexibility with which your Plan — long or short term — is empowered can be put into different terms. The investor with the most options wins almost every time. Also, the speed at which you’re able to make the necessary adjustment is critical. Duh, I know, but a widely ignored reality.
Sometimes the answer isn’t to adjust, but to accept what is, which is the tack I took in abandoning my own market almost a decade ago. Greg Maddux, arguably one of the best righthand pitchers ever to toe a major league slab, faced Tony Gwynn over 100 times. Tony hit .415 against him, something they both joke about to this day. However, unlike real estate investors, Maddux had no choice but to pitch to Gwynn. If Maddux was an investor who failed over 41% of the time he invested in a particular neighborhood, do ya think he might kick the dust of that area from his shoes forever?
You bet he would.
Yet investors often stubbornly insist on repeating what isn’t workin’ all that well, cuz they think it’s a matter of tweaking their approach. At some point, we must decide to believe our lyin’ eyes, right? At some point, Maddux realized it wasn’t his approach, but that he simply wasn’t gonna get Gwynn out at the rate he experienced against the rest of the league. Fastballs, sliders, curveballs, change ups, and all their variations made no difference when Gwynn was in the batter’s box. In fact, I remember one time when Tony was on first base after yet another of his base hits against Maddux. Greg made a well known gesture of derision in Tony’s direction, which broke Tony into laughter. I saw it happen live on TV and laughed out loud myself.
Given solid principles in place, it’s my professional opinion that the common denominator of highly successful real estate investors is their keen ability to discern a changing reality and quickly apply the appropriate adjustment(s). The most egregious example I can add here is an investor in denial. Like the others, denial works ’til the day it doesn’t.