The Real Estate Investor Retirement Recovery Window – Two Years Old

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I coined that incredibly original phrase about this time last year in a post on my own site. The post duly noted that the convergence of three factors, crucial to long term real estate investing. Interest rates at historically low levels, price/rent ratios mimicking 1958 textbooks, and blue ribbon locations sporting smallish newly built income properties, have become bosom buddies since around early 2010. That’s two years of investing in the only perfect storm I’ve ever witnessed first hand in my career, which began in 1969.

I strongly believe there won’t be another in my lifetime.

Those having done this as long as I, realize how rare this really is. They remember the recession of 1981, but not fondly. You think this one’s been destructive? It certainly has, but it doesn’t pack the same sorta ammo that one did. Try nearly 15% inflation, 20%+ prime rate, and an FHA rate of 16.5%. That wasn’t a perfect storm. It felt like it was an earthquake, tornado, and tsunami holding hands while running through the country. Add all the usual downsides to a recession and you can begin to realize the difference in what we’re mired in today.

I’m not pointing this out to imply a parade of celebration is in order. Far from it. But having lived through the five or so recessions before this, and this current downturn, I’ll take this one — when lookin’ through the real estate investment telescope. It’s not even close, people.

Real Estate Investor Retirement Recovery Window

It’s my belief we’re finishing the second year of this perfect storm. I’m fairly certain, though not anywhere near SlamDunk sure, that 2012 will also be part of this window. Beyond that is anyone’s guess. It depends upon WAY too many factors, most of which are political in nature, not to mention about other continents’ economies and politics. It’s hard to read a cracked crystal ball, the condition of mine for a few decades now.

I used the word recovery cuz I’ve found real estate investors fall into a very few categories. There’s the short term crowd. They think they’ve died ‘n gone to Heaven, which is true to a certain extent. It’s also the reason most of ’em, sadly, will realize long after the horses are outa the barn, that they missed the long term window of real estate investing. Sure, they’ll have better homes for their families, and shiny cars and such. But they won’t have invested long term, at least the super-majority of them. They’ll pretty much miss out.

Then there’s the gotta buy local crew. If they’re from most parts of Texas and a few other select markets, it won’t matter much. Since most aren’t though, they’ll sentence themselves to below average to mediocre retirements. Seems being able to drive by their properties was more important than a superior retirement in the decision making process. I’m being a tad sarcastic about that, but since we’re in the second freakin’ decade of the 21st century, you’d think they’d adjust. That sounds harsh, I know. But if they don’t snap out of the love affair with their crummy local market, they’ll learn what it’s like to work into their 70’s. It’s almost epidemic in San Diego.

The group that may be hit the hardest are those insisting on combining some of the no-down formulas in the hardest hit markets. Ask investors in Vegas and many parts of Florida how that’s been workin’ out for ’em lately. I have, over and over, and it’s always sad. Meanwhile, those who told them it was the thing to do are long gone. Their retirements are now not much better than a pipe dream. Not only will the so-called income stream not be there, but many have already lost the properties along with all their hard earned investment capital. It’s this group who I suspect will form a new demographic — former homeowners/investors renting small homes/condos and workin’ ’till they just can’t any more. Beyond sad.

Those who realized how relatively easy it is now to buy investment property hundreds if not thousands of miles from home, are the group who will reap the retirement benefits. I call them the open-eyed crowd. Whether they used cash on hand, or traded the equity from local market investments, they’ve capitalized on the existence of this perfect storm. They see that it literally is a Real Estate Investor Retirement Recovery Window. They also realize it’s probably gonna close sooner rather than later.

Meanwhile, this last group, the ones with their eyes wide open, are tradin’ equities into, or buying the perfect storm type of income properties. They’re lockin’ in super low interest rates, while getting historically strong cash on cash returns. All this and most of ’em are only puttin’ down 20-30%. If anyone thinks this is gonna be the new norm, they’re sadly mistaken.

It’s called a recovery window for a reason. Just as the window opened, it’ll close. Once that happens, there’ll be two groups left. Those who loaded their real estate investment portfolio up with perfect storm type properties — and those who wish they had. Your 401 ain’t gonna cut it. Social Security? This isn’t a standup comedy routine. Your retirement has a chance now. The window is open. Are you in, or are you out?

Birthdays are gonna keep comin’ and goin’ regardless of your decision. Tick tock.

About Author

Jeff Brown

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


  1. Hey Jeff. Another great post. I have read all of your posts and I really enjoy them.

    I have seen you mention TEXAS many times as a great place to invest. You also mention that there are some other great locations around the USA. I am from NY and I have just bought my second investment property in Raleigh NC. Here is my thinking for Raleigh, NC:

    1)Very business friendly state
    2)3 main universities (UNC, DUKE, NC State)
    3)Research Triangle Park (home too companies like IBM, Biogen, RedHat, Cisco)
    4)Good school systems
    5)Properties cash flow with the standard 20% down payment.
    6)Population is and has been growing nicely for the last 10 years

    Are these some of the criteria you would use to determine if an area is a good investment area?

    Keep up the good work. I have your phone number written down. I plan on calling your tax guy some time next year to figure out the whole depreciation game. THNX,


  2. Jeff Brown

    Thanks, Dave. The parameters you’ve listed are indeed part of my macro analysis. I also include how the state taxes people and business — or IF they tax them. 🙂 Then I search for migration trends — again, both people and business. Is a state’s population increasing net, net, net? Are businesses from other states expanding or outright moving there?

    At least equally crucial is figuring out the long term growth path, regionally. There’s usually a corridor almost always parallel to freeways acting as main arteries.

    You should call the CPA yesterday afternoon around 4:30 — not January. It could mean $$ to you, big time.

  3. I also enjoy your posts and topics. They make sense and your writing has grown on me.

    Like Dave who posted before me, I am also from the NY/NJ area and have a commercial property in the Bronx. Although I know there are opportunities here, I can’t help but think that this region is substandard for attempting to accumulate a property portfolio. Prices are high, regulation is onerous and taxes are ridiculous as well as numerous. In short, I’ve got a serious case of “grass is greener” syndrome.

    Do you have any thoughts on the NYC/NJ markets? I am just wondering if this is an area you consider dabbling in or is it not to your liking?


  4. Jeff Brown

    Hey Rob, thanks. In your case, the ‘grass is greener’ syndrome is real, not imagined. Get outa Dodge now. Not soon, now. I have several recent clients in both NY and NJ, and they didn’t buy anything there with one exception. One already owned a triplex in a nearby state, a property which will now be exchanged, tax deferred, for property in Texas. He’s already acquired one, earlier this quarter.

    Simply put, the price/rent ratios where you’re talkin’ about are terrible. If they’re not, we both know the other side of that coin means you’re ‘packin’ ‘ when you collect rents. 🙂 It will only get worse as time passes. Also, ask yourself when’ll be a better time for you to get it done? Get out, and get out now. Of all the parameters I use to analyze regions, yours has zero to offer. You pretty much covered it in your comment, right? They hate investment capital. If it moves, houses people or businesses they tax it. If it’s taxed, they figure it can also be over regulated. 🙂

    Rob, from me to you, there’s virtually no upside to keepin’ your portfolio there. Get out while the gettin’s good. If you need some guidance, I need a fix. Gimme a call. 🙂

    Bottom line? Your gut’s right — the grass is greener, big time.

  5. Jeff,

    I guess I agree with everything but the nothing down. My last 4 rentals have had little to nothing down (13k total for 4 props) with up to 30% equity after repairs. All have positive cashflow. Even in the two that lost value are still above water because I purchased and repaired below 80% ARV. I think it can be done and should be done when possible. Why tie up 20-30% down payment cash when you don’t have to? (assuming you can have built in equity)


  6. Jeff Brown

    Hey Jason — Good to hear from you. We don’t disagree. It seems paradoxical, but it’s not. To you and I, 30% equity is 30% equity. Ya gotta know though, that you and those like you are rare as hen’s teeth out there. So 0% down is misleading in the sense that you’re not payin’ anywhere close to what it’s worth as finished. Also, you know that goin’ in, cuz you’re what we call a professional. 🙂 You actually know what you’re doin’.

    We’re on the same page.

  7. Without even asking I’m pretty sure I know your thoughts on the SE Michigan market for buy and hold:
    -declining job market
    -high taxes
    -older homes (built 1945-1950)

    Do you really feel strongly about a house that os 60 yrs old being a definite NO? These entire cities were build in that 5 year period.

  8. Hey Josh — You bring up an excellent issue. First, let me confess something here. San Diego has some properties so old the pipes connecting the buildings to the sewer in the street are made of clay. No doubt the median age of all the property I’ve bought/sold/exchanged myself and for clients is somewhere above 35. If that number was computed using only the properties I dealt with after 1990, the number rises to well over 45 no doubt. Today? Income property built in the 80s is considered young.

    However, the difference between you and I are threefold. 1) This is all I do. (Maybe you too?) 2) San Diego was a high appreciation market from the mid-70s through the latest bubble. 3) We’re not in Kansas any more, and are very likely not returning in quite some time. 🙂

    That’s my way of sayin’, that I have a decent excuse for having dealt in ‘ancient’ properties. Appreciation covered up virtually all sins. SE Michigan? To put it as gently as possible. not freakin’ likely. 🙂 To be fair however, I’ve been tellin’ San Diego investors to haul their investor buns outa that market, my home town, since 2003. In other words, I’ve been walkin’ my talk since I read the writin’ on the wall sayin’ the party’s over.

    You laid out the answer to your question, Josh. High taxes, old properties, crummy job market. Michigan is the anti-Texas. (So’s CA for that matter.) If you own property there, and they have tradable equity, get out by yesterday afternoon, and move them to superior markets.

    You can do so much better. Your retirement will thank you. Make sense?

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