Things aren’t Always Objective in Real Estate — Life Happens!

4 min read
Jeff Brown Read More

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In last week’s post we talked about how a California couple might trade their impressive net equity — about $435,000 — into a far better investment environment, Texas.

Since their household income is enough to support their growing family, but not enough to add to their overall Plan, at least for now, their options are somewhat limited.

In many cases, though, having enough cash flow to quit a job that’s killin’ you off one miserable day at a time can be a lifesaver. Most folks don’t have that option. Furthermore, ’til we live in their shoes awhile, it’s far better to accept their choice as best for their own family.

You think it’s easy to quit a job to rely on cash flow?

Not even.

It’s a perfect example of rigorous objectivity stepping aside for your Comfort Zone.

Here’s What my Experience has Shown Me

The decisions made by real estate investors as regards their overall Plan must be tempered by their comfort zone.

We all have ’em, right? Is anyone gonna force you to violate yours?

Right, neither.

Thing is, there’s always a price, as the world doesn’t care what we want, and will exact compensation. A perfect example of that is the trap in which far too many successful flippers fall.

They become good at it, rapidly increasing the family treasury. Following that is an almost immediate improvement in lifestyle, including a bigger house, better cars, vacations, and the rest. At some point it dawns on them with chilling, undeniable truth, that they’ve imprisoned themselves with their success.

Yeah, the much envied lifestyle is nice, but their retirement income is pretty much non-existent, and they know it. They also figure out pretty quickly that their lifestyle continues only as long as their flipping does. Simultaneously for many of these poor souls, is the tardy realization their bodies are making known their growing reluctance to continue.

Much of that same script routinely plays out with long term real estate investors who get the cart in front of the horse. In that analogy, the horse is capital growth, while the cart is maximum cash flow in retirement.

As I’ve written several times before, whenever the investor emphasizes one, the other suffers. There’s no way around that reality. To the extent you favor cash flow over capital growth early on, not only does capital growth suffer, but retirement income does too, much to the future chagrin of surprised investors.

Once that die is cast a very different strategy must be adopted to correct course and generate more favorable retirement cash flow results.

Ironically, I’ve found that most who’ve opted for cash flow in their early years are simply unaware their cash flow is woefully short of what it coulda, woulda, shoulda been in retirement. When shown empirical evidence of the life they might’ve been living they often grow quiet for a bit.

Objectivity and Real Life

The married couple with a working wife who decides to have her quit work to be a stay at home mom, isn’t opting for the best investment strategy(s) on their retirement income menu.

Yet, who among us would do anything but applaud that move?

We all make choices which aren’t the best for our long term retirement plans. Most of us do it as a result of something we value far more — usually family. A close second is sanity retention. 😉 We all have our own core beliefs and values. We show who we are when we elect a financially less attractive option based upon those beliefs and values.

What we discover, and I had to learn this the hard way, is that as long as we adhere to the physics of investing over time, our subjectively driven decisions based upon family and our own sanity, won’t have a profoundly negative impact on our retirement income. I guess this all falls under the axiom saying, Life Happens — You’ll Be Fine. Grandma told me that all the time.

When people are able to spend 20-40 years working an ever evolving Plan for retirement, the pause button will be pushed a few times, both on purpose and by outside forces.

The thing to resist most when it’s against our will is to attempt overpowering the inevitable. The most obvious and recent example of that is the real estate bubble bursting all over us. If the investor obeyed the laws of physics of investing, their setbacks were likely not fatal. However, if they fantasized their violations of these laws would go forever unpunished, they eventually learned otherwise.

In the 80s I learned by losing three properties, lessons that only amused Dad, who’d had the same experience himself much earlier, though just once. 🙂

As I make clear to folks daily, following the centuries old ‘physics of investing’ is surely boring. But let me assure you that as it turns out, ‘exciting’ isn’t always combined with ‘fun and . . . ‘. What was pounded into me and what I repeat ad nauseum to anyone who’ll listen, is that succeeding wildly in creating truly impressive retirement income is almost always accomplished via a mind numbingly boring process.

The Takeaway

Whether or not you’re blessed with substantial investment capital from Day 1, or currently on a savings program to accrue sufficient capital to begin, remember this.

The more time you have, combined with strict adherence to the aforementioned investment ‘physics’, the more likely you’ll end up with a retirement income equal to or greater than the best year you ever had on your job.

Sure, you and life will intervene, pushing the pause button at times. So what? Sooner or later the ‘resume’ button shows itself, and you’re back in the driver’s seat goin’ exactly where you wanna go. Given enough time the ultimate retirement income you’ll be able to produce will astound you.

But the trip will bore you to tears. 😉

Where are you on your pursuit of funding retirement?

Be sure to leave your comments below!