Real Estate Investment Schools of Thought Vary – As Does Their Mileage

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Many years ago a guy in his early 40s called for an office appointment. He’d invested in his first small income property, and was troubled by the advice his 70 year old dad had offered. In fact, there was tension between them about what investment strategies the younger man should employ.

Dad, we’ll call him ‘Sam’, had a core belief that debt, even in the best light, was nearly evil. Nothin’ good could come from it, and everything awful was almost assured, due to its existence.

His son, ‘Jack’, wasn’t a zero down enthusiast, but his extensive research taught him that prudent leverage, executed wisely, was often a foundational factor in the creation of wealth. To Jack, though, retirement income was the reason for the season.

For those unaware, I live and work in San Diego, having moved here in June of ’67. Sam bought his first property in the 70s. It was a very well located fourplex just down the road from where my office is now. I love that neighborhood. He’d been retired for several years. Both his home and the fourplex were debt free. He had a pension of around $2,000 monthly, plus his Social Security check which he said was around $1,300 each month. The fourplex, at the time, added roughly $1,800 a month in cash flow to the pot. He had no house payment, but his taxes/insurance ran him about $300 or so monthly. Lord only knows what his cost for maintenance and repairs was, as the place was built before WW II.

Jack? With Sam literally glaring across the conference table at me, he opted to follow a pretty conservative leveraged approach. An advantage he had goin’ for him was his contractor’s license. He had a bit over $100,000 to get started. He’d acquired a one bedroom duplex a year earlier as a fixer, which had done well. Its net equity back then had hit around $50,000 +/-.

I won’t go through all the mind numbing numbers, or all the various moves Jack’s made over the years, executing the strategies I’d laid out for him. Suffice to say that he’s turned that original investment plus the $100,000 into not only a healthy net worth, but superb cash flow. In fact, an ironically to say the least, by following his Purposeful Plan, he methodically rid his properties, one by one, of all debt. His income today is five figures monthly.

His net worth requires two commas easily, and has for quite some time.

I never saw or talked with Sam once he left my office after our first meeting. Still remember that glare though.

There’s room for all the various schools of thought when it comes to investment in real estate.

This is especially true as it relates to long term outlooks. However, don’t for a minute think the outcomes are synonymous, cuz they aren’t. Not by a long shot. Be very careful, thoughtful if you will, as you choose your strategies when electing real estate investment as your main vehicle for retirement income.

Why does this come across as breakin’ news to some?

When real estate investors eschew leverage completely, by definition they limit their ultimate retirement income — unless, of course, they begin with a few million bucks. Since that’s not freakin’ likely, their retirement income will be significantly less the those who opted in favor of sagacious leverage, applied appropriately. There’s not a thing wrong with that. As long as you’re happy with the income your strategies have generated, that’s enough. We all have our own comfort zones, right. Don’t know about you, but my comfort zone trumps everything. Bet yours does too. If I’m not all warm ‘n fuzzy about something, especially to do with my own capital or real estate, it ain’t happenin’.

There are those who think puttin’ nothing down on real estate is not nearly as risky as is the general perception. They buy a property, fix it with their own cash, then sell for a reasonably quick profit. Much of the risk taken is reduced as a result of their experience and expertise. Still, it’s obviously far riskier than putting down a 20-50% down payment. Again, it’s about comfort zone. There’s allows the use of the no-down strategy.

Some of my clients, a very few to be sure, will knowingly arrive at retirement with less cash flow and net worth than might’ve been. They listened to the strategies I recommended, then decided, even though it was OldSchool conservative, that they wished to be a tad more so. They pulled out their comfort zone ‘trump card’. We then preceded their way. As I told a new client recently, “You’ll probably be able to limp along in retirement with ‘just’ $10,000 a month plus your EIUL plus your pension.” 🙂

There are certain categories of real estate I’ll never own. I have a personal bias against ’em. Yet, I personally know many who have done exceptionally well with them. Go figure. Yet, the reason I’ve avoided them like the plague is the same reason some of these investors have gone through unfortunate times. Yet, many of ’em not only stayed the course, they acquired more of the same.

Comfort zone. It’s always about comfort zone.

There are indeed strategies I view as, um inadvisable. But it’s just my professional opinion, based upon my own experience and analysis. Heck, Grandpa used to recoil in horror at the strategies I teach and use in my practice as a real estate investment advisor. He was 22 when the in October of 1929 when the crash generating the Great Depression hit. Many of his generation, and those whom they indoctrinated believe incurring debt is a principle espoused by Satan himself. I get it. After hearing many of Grandpa’s depression era experiences, I might’ve come away thinkin’ the same way.

Comfort zone is everything. All us have one, and it ranges from zero down to paying with cash. Some never sell anything they buy. Some won’t ever exchange to anything or things bigger. It’s all good. But it’s definitely not all the same, or more plainly put, equal.

Different strategies generate different results — sometimes wildly different. Always listen to your comfort zone when it speaks but remember . . .

Your mileage may vary.

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. There are many ways to get to the core of it and it does depend on the comfort zone, but also an accurate assessment of where you are, what are your strengths and were your weaknesses lie. You have to design approach around those strategies.
    The one issue that I will point out in the story is in paying off the property completely. One of the greatest attributes to real estate investing is the high yield that you can earn based on the amount of cash or equity you have in the investment. What most investors fail to realize, that by having equity sitting in a property they are actually choosing to reinvest that money in that particular property each and every day.
    For example:
    That fourplex you mentioned, let’s assume you purchased it for $100,000, 20 years ago and paid it in full. Today you are earning $4,000 a month an income and it has a value of $420,000. You are not earning that income off of your initial investment, but off the value of that asset TODAY. Maybe you’re happy with that rate of return today, and that’s great, but if you wouldn’t pay for your building today to earn that money, it’s time to move on to something else.

    • Jeff Brown

      You’ve nailed every point you made, Frank. So often I tell investors who’ve fallen in love with something like the fourplex you mentioned, that they’re buying it for today’s value, not the relative pittance they paid for it. On the other hand, if they’re very near to, or have retired, the debt free income is the pot of gold at the end of their own rainbow.

      The first step in any Purposeful Plan, without exception, is to accurately establish where you are now. It’s akin to finding the new store at the mall. The map shows where it is, but you still need to find the ‘you are here’ sticker to know exactly what direction to head first.

      Great stuff, Frank.

  2. Great article, Jeff. Sometimes just knowing that one size does not fit all can spur someone along to do what they are indeed comfortable doing. This is why so many real estate books and gurus fail in their message. A particular strategy may sound good and look good on paper but may not be a plan that most people are willing to carry out.

    Prudent leverage will definitely enhance returns, but it may not be worth it for some. There are undoubtedly legions of newly minted, risk-averse people out there who will want nothing to do with debt in the future – if they could even get a mortgage – due to their recent third degree burns sustained during the housing collapse. Those people will most likely be cash buyers in the future and, as you say, their mileage will vary.

    But a cash purchase is still better than nothing, or chasing the Facebook IPO…


    • Jeff Brown

      Hey Rob — Good to see you here. “But a cash purchase is still better than nothing, or chasing the Facebook IPO…” Couldn’t say it any better.

      Your observations on comfort zone boil things down very well. The key, at least for many, is to discover if their own comfort zone is a bit stretchy, or rigid. Either way, in the end, that zone MUST be respected and followed.

  3. Great article Jeff. Risk is the number one factor that should be analysed. So often people focus on returns and various other trends. The mentality to find an investment approach that works contingient on factors outside ones control is commonplace. I think the real estate world is the most glaring example of this by far. I personally could have made a lot more money if I did this or that but it is just as likely that I could have gone bankrupt. People need to look at investment opportunities based on all the possibilities of what could play out. If a person purchases a house to flip and they need to sell it within 6 months or they can’t do it then they shouldn’t do it. Keep up the good work on this focus!!

    • Jeff Brown

      Hey Kyle — Your example is especially true, if only cuz flippers, at least most of ’em, are constantly ticklin’ the redline.

      “I personally could have made a lot more money if I did this or that but it is just as likely that I could have gone bankrupt.” A very astute comment, as the ‘coulda, shoulda, woulda’ crowd rarely takes that factoid into consideration when lamenting past decisions. Yet, when they eschew an investment due to risk, if it went terribly wrong, the first thing outa their mouths at the neighborhood BBQ is, “Yeah, I told ya that one was a loser.” 🙂

      Thanks, Kyle.

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