The Gold Standard - Who's Happy To See You Comin'?

Forget the title for the time being, OK? Let’s talk ’bout your strategy — why are you investing in real estate? Dumb question? Cool, then go ahead and answer that question in less than 60 seconds, in your head. Was it an unambiguous answer? Concise? Would the questioner be able to repeat it easily — making it understandable to the next guy?

Most folks, including yours truly, fail miserably the first time they try this exercise. They think they know why they’re doin’ what they do, but when asked to boil it down to a minute or less, they can’t get it done. And no, buy low — sell high doesn’t cut it. Are you makin’ a living at it now? Are you investing to improve the quality of your retirement?

Why? You need to know that answer backwards and forwards.

I’m being a bit abrupt for a reason. Most folks who contact me for professional advice can’t answer that question — I’d say the 80/20 rule applies. Here’s the thing — ya can’t have a viable strategy, or set out the tactics to execute it, without having an objective. Frankly, and I get plenty of raised eyebrows for saying this, your objective is irrelevant. The fact that you know exactly what it is, allows you to adopt any strategy at all.

Allow me a baseball analogy, which for those who know me well, isn’t a shocker.

The Padres were successful in gettin’ a brand new ballpark in which to play. It’s gorgeous. Problem is, they moved there a few years ago with a slow, ponderous lineup, with most of their power to right field. The new place, PETCO Park, is, in baseball parlance, an airport. Great for pitchers, but a graveyard for left-handed power hitters. I’ve seen 270 pounders hit triples to right center. The strategy for a winning team there is to have strong pitching, defense, and a whole buncha speed on the bases. They now have that. Well, at least they have decent pitching, very solid defense, and six of their eight every day starters are pretty fast to wicked fast runners.

See? Their objective, winning at home, dictates their strategy, which they’ve now made reality. The same applies to you as a real estate investor. Are you in your 20’s to early 40’s or so? You should be thinkin’ relatively long term — maximizing your potential after tax retirement income. Older than that? I dunno — do ya have capital? Assets? Anything? If so, you need to stop shoppin’ for flashy shortstops who can’t hit, and start lookin’ for a reliable RBI man. You need to begin scoring, and often. Runs = cash flow.

Your age dictates the kinda park in which you’re playing. One is like the Padres, peck peck peck, the long term approach. A run here, two runs there, good pitching and defense. Before ya know it they’ve beaten you 4-2 very quietly, and probably without one homer.

On the other hand, if you’re older and find yourself in need of a faster working plan to reach your retirement objective, it might make sense to employ the Earl Weaver strategy. Though he liked pitching and defense, (Who doesn’t?) he eschewed any offense other than 3-run homers. He didn’t steal, bunt, sacrifice, or hit-and-run. He thought that approach was for sissies. In other words, he wanted to score in bunches — with one swing of the bat. If you’re late in the game, and find yourself behind on the retirement scoreboard, you need to employ a different approach than the 32 year olds next door. Makes sense, right?

Again though, the key is actually knowing your objective. No definitive objective? There’s no strategy that’ll make sense to anyone, unless you simply luck out. You feelin’ lucky? Makin’ profits and/or cash flow in and of themselves isn’t the point. It’s what the investor does with those two that makes or breaks the potential success of any strategy.

Now, about the title.

When you have well defined objectives with clearly congruent strategies in place, you’ll be on the right track. How do you know you’re doin’ things right? One of the ways was taught to me early on by Grandma. In fact, over the years I’ve made it into one of my favorite axioms of life. It’s never failed to be true in my life, not even once.

BawldGuy Axiom: There are only two people you always want to be happy when they see you comin’ their way — your banker and your wife. If you find that’s always the case, you’re doin’ things right. Ya can’t fool those two.

Just make sure you know your objective when it comes to investing in real estate. It’s never a good day when you learn, usually too late, that you’ve been using the wrong strategy all along. Allow me to conclude with another example from baseball.

You’re the manager of the 1927 Yankees. It’s the bottom of the 9th, and you’re behind 5-2. There are two outs, but your guys have loaded the bases. It just happens you gave Lou Gehrig the day off, so he’s available to pinch hit, along with the league’s best bunter. With one out left, which one do you send to the plate? It’s late in the game, in fact your last out, so of course you tell the Iron Man to get his bat and take his best shot.

Remember, it’s always knowing where you are in the game, what the objective is, and what the best available strategy is for you to gain that objective.

Lou homers, of course. And for the record, both his banker and his wife were always glad to see him comin’ their way.

How ’bout you?

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.