Grandma was a saint. I’m bettin’ most reading this share that opinion about their grandmas. The older I get, and the more experience I acquire (endure?), the more I’ve come to realize what an incredibly wise woman she was. She was also the only person who’d address me as Jeffrey Scott without me cringing, wondering what I’d done now. 🙂 She taught me much about the value and the folly of experience — a sometimes deadly paradox.
Let’s talk about experience a bit.
Factoid: I never saw an interest rate below 7% ’till I’d been in the business almost 35 years! Are you surprised I never thought it realistic that some day rates would be below 5%? Why should I have? Remember, over three decades of over 7%.
She taught me that someone’s decades of experience were both golden and worthless simultaneously. My generation, and 90% of those reading this don’t have first hand knowledge of what it’s like surviving a real live monetary deflation — what you and I would call a Depression — capital ‘D’. Many, maybe most think it simply can’t/won’t happen.
For the record — I don’t think we’re in for a depression.
Yet, everyone I’ve ever talked with who lived through it in real time, including Mom, says nobody thought it possible back then either. (She was told that by her aunts/uncles and such, as she was 10 when the recovery began.) We have a far better excuse than they did, as it was as recent as 1907 that the economy nearly collapsed, but for the intervention of J.P. Morgan and his arm-twisted cronies. All we’ve ever seen is good times, light to not so light recessions, great times, bad recession with 21% prime rate thrown in, superb times, followed by — well, you see the trend, right? Our world has, without exception, rebounded better than it was before it slowed down — even after the S & L debacle. That’s been a fact of our economic existence since our soldiers finally came home in 1945-46.
The point is, decades of experience, though serving us well most of the time, has led many down the primrose path when the widescreen picture is shown. Do I think we’re headed for a new depression? Again — no. I do think we’re more likely to remain deflationary rather than inflationary for the time being — which brings us to the why.
We’re deleveraging at every level of the economy. Public, private, big and small, you name it. It’s not just here either, it’s global as I’m sure you’re acutely aware. Inflation is tough to generate, regardless of how hard the liquidity fairies work, when Main St., Wall Street, Monster Bank Inc., government at every conceivable level, and last and certainly not least, real estate in pretty much every niche is in the throes of epic deleveraging.
What so many ‘experienced’ real estate investors are doing, either strategically or by way of acquisition techniques, aren’t nearly as far from the dangerous edge of the cliff as they perceive. Should you still buy, sell, exchange, wholesale, fix and flip, and the rest of it — long and short term? Yeah, but from where I stand, there are a buncha folks that may wanna back off the accelerator just a tad — maybe take their foot outa the firewall. I’m not gonna make a list here of strategies and/or techniques of what I think are edgy, because it’s always in the eye of the beholder. Live and let live has always worked well for me.
It wouldn’t hurt though, to take a step back. Analyze the very real potential consequences upon your portfolio of any deflationary change in the market. But, as I tell my clients, don’t allow me to get away with such a namby-pamby nothing statement. Make me get more specific.
- Do you have enough skin in the game? You know exactly to what I’m referring. Are you vulnerable?
- Is your financing sound? Is it short fused? Did you take over someone else’s loan? Are you subject to adjustment?
- How many of your real estate investments, if any, are well located? How many don’t cash flow at least a little bit? How many haven’t been well maintained?
- Do you own properties that should’ve been sold and/or exchanged long ago? Ask yourself why that is. Correct it.
- Are any of your properties candidates for sale at a paper loss in order to offset a potential capital gain on another property? If so, now would be the time to execute that particular maneuver.
There are many more questions of course. The point is that it’s time, past time for many, to reassess their current status. Knowing your current status, (Proximity to cliff’s edge?) now is gonna prove almost infinitely more valuable than knowing after the fact — you know what I mean, right? Those who are quietly repositioning their real estate portfolios — making them leaner, meaner, and without the fat, will be far better off.
All this is to illustrate what Grandma taught me about a farmer and his mare. It has to do with fundamentals — of everything we do. The fundamentals of all that is real estate will not be mocked sans consequences. Or, as Grandma told me…
About the time the farmer trained the old mare to work without eatin’, she died.