Keepin’ Your Eye On the Ball — Retirement Income

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Ah, wise advice — but what ball? When investing in real estate for the long haul, almost always with retirement income as the end game, the ‘ball’ is that very retirement income. When making decisions on potential moves — buying, selling, exchanging, financing and the like — short term benefits often get short shrift. The current so-called real estate recovery is a perfect example to examine.

Note: After much thought, I decided not to name the states involved here. I don’t wanna inflict my personal judgments on various regions/markets on these pages — good or bad. It’s always been my only goal, here on BP, to enhance the general understanding of long term real estate investing.

Many markets have seen an impressive uptick in not only sales, but value. This has caused many to respond in knee-jerk fashion in ways that might not produce the long term results for which they’re aiming. Very recently I was talkin’ with a sophisticated and experienced investor client. They wondered if their long term retirement income goals would be enhanced by what they were doin’ short term in a currently hot market a few states away. The feeling was that both economic and demographic fundamentals were clearly on their side in the short term state — and they’re pretty much right. However, being right today and right this time next year are clearly not the same thing, as much as we’d love — want? — to believe it. Their overall Plan is to use the short term profits from one state to enhance the long term efforts in the other state. When I brought up the short term state’s history, both recent and historical, a topic on which he could lecture, he agreed with my take on current events. That is, a new local bubble was growing, more likely than not. What he wanted to hash out was if the bubble would be gracious enough to last ’til he got outa Dodge. :) My answer?

He just may’ve been askin’ the wrong question. A better one might’ve been: Is risking the downside worth it on the long term side of his Plan?

There are various scenarios ending with investors being unable to sell their properties in his short term state. This could happen any time in the next 6-24 months. He agrees. Thing is, if he begins his ‘Get Outa Dodge’ program now, he’ll still make some impressive hits. He just won’t look as studly as he first planned. By hittin’ the exit now, he’ll almost surely generate splendid profits. They’ll be immediately available to take advantage of the long term interest rates and prices presently available in his preferred long term investment market.  His choice is much the same as so many investors are facing.

Do you count on the current upswing to last long enough to maximize profits? If so, and the local and/or national fundamentals change course, will it literally hinder/stop you from executing your overall Plan? If so — and you believe it could happen — why would you wait the extra year or so? Once you’ve relied upon a market to deliver a crucial piece of your overall Plan, and it fails to deliver, how many years will you be forced to ‘run in place’ ’til things change? And there’s the rub.

The Problem with Following the Fads

First, you don’t know how long the failed attempt at greater profits will delay the execution of your long term retirement Plan. The real problem is that those pesky birthdays keep showin’ up, year after year, regardless. Meanwhile, what might be goin’ on, which could have a significant negative affect on your long term investment strategy?

Interest rates could climb. We know they’re gonna, we just don’t know when. My experience has been that we’re always surprised when it does begin to happen. Thing is — Captain Obvious alert — rates tend to climb a whole lot faster than they fall. Go figure.

Inventory, at least the segment/locations in which you’re keenly interested, could decrease drastically. Anyone seein’ that happen in their favorite playground? Oops.

Well performing markets are no longer stealthy – at least for those investors choosing to pay attention. This has already resulted in the number of investors in some of these markets competing with each other, and you know the result that produces. Increasing population, impressive job numbers, and rising prices are all appealing. However, the experienced long term investors asks themselves: What’s the real  makeup of that incoming population? What kind of jobs are being created? Why are the prices rising, really? Does that positively surging market have legs? And — Are you sufficiently confident to bet your retirement income on it?

I asked this investor a question that quickly provided him keen focus on his quandary. A decade from now, when your retirement income from real estate alone is well over $25,000 monthly, will you give a rat’s heinie about the $100,000 you made 10 years ago, instead of risking the ultimate success of your Plan on the chance you might’ve made $250,000 by waitin’ another year?

Well, since you put it that way . . . :) I do put it that way, cuz that’s how it is. We like to think what we’re doin’ now is what we’ll be doin’ next year, or a few years down the road. But it’s that kinda thinkin’ that made mulch of so many investors just a short few years ago. If investors have learned anything since the Great Bubble Burst, it should be that strong fundamentals cannot be ignored for long if at all. That in the end, the ‘ball’ is retirement income. OldSchool, long term Planning — accepting current fundamentals, good, bad, or ugly as they are, will make or break investors’ and their Plans. That the details of those fundamentals matter — an understatement if ever there was one.

Keep your eye on the ball.
Photo:Mr Empey

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About Author

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.

7 Comments

  1. I have gone to bed hungry many nights to protect my long term investments. (Going to be hungry is not so bad, by the way, when you know exactly why you’re hungry.)

    When I do retire, “as God is my witness, I’ll never be hungry again!”

    Thanks for your post, Jeff.

  2. Seems that not many people have their eye on the prize like this…setting up passive revenue streams that may not bring huge returns up front, but will allow you to retire as a king.

    Good thoughts Jeff!

  3. I couldn’t agree more. Keeping an eye on the end game (ie; retirement income stream) is what’s most important. As well as taking the smart steps to getting there as well. We are in the buy/hold/rent arena and currently have 5 SFH’s. One of them has had a tenant for 3+ years who via her rent has completely repaid our initial investment including repairs. So it’s nice to see them one by one get closer to a return on our investment. By the time we do retire, they will all be paid off and any income, minus taxes and repairs will be income for us. It’s a great feeling to have that as we all know it takes quite a bit to retire comfortably!

  4. Hello Jeff,
    I started to invest in real estate because I wanted steady income with no need of investing the time that businesses needed. For me my strategy will be to build as many businesses as I can with the earnings focused to grow my real estate portfolio as quick as I can, that beeing said I am sad that I didnt have more time to buy properties in the conditions of last year.
    With the purchases I have made last year, I now picture myself with 200 SFHs in about 5 to 6 years, but not really for retirenment but to make my life very exciting since we really dont need that much income to live well, I think that what really matters is to do good things with that income and really help individuals that dont have the same luck or education.
    Thanks for the post

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