Try getting’ two or more real estate investors talkin’ about when to make a move and/or what move to make can be interesting, sometimes heatedly so. Usually I can listen for awhile, picking out to what ‘school’ each investor seems to adhere. One thinks tax deferred exchanges (IRC Sec. 1031) are the be all end all to everything but hay fever. The next guy is horrified at even the idea of going out of ownership of a single piece of real estate, absent dire personal emergency.
The Achilles heel of both these belief systems is their rigid inflexibility.
Both these guys can be shown a well done analysis clearly indicating multiple options and their predictable consequences. They’ll both smile politely, then do what they’ve always done. Real analysis is anathema to them.
Since Carter was in office I can’t tell ya how many times I’ve demonstrated beyond reasonable debate how, over the long haul, their approach had cost them hundreds of thousands of dollars, sometimes millions. A few times they’ve challenged me to show their CPA these numbers — much to their regret. See, I don’t have a dog in that fight. I care about one thing — which strategy gets them to their <em>Point B</em> faster and/or more safely?
Know what gets overlooked though? Whether to make a move at all. Just guessing’ here, but give or take 15-20% of the time, I tell clients not to make any moves now. ‘Course they wanna know why, which is easy, almost always ending in some chuckles and a clearer understanding of the advice. For me it’s policy — Brown and Brown policy, which has been in place since, well, forever.
If in my judgment, any anticipated move will produce only marginal benefits, it’s probably not worth the effort — or the expense. My typical reply when asked to more precisely define ‘marginal’ goes something like this.
“I’ll probably benefit from this transaction more than you will.” That usually does the trick. 🙂
The honest, unbiased analysis of any particular situation will almost always indicate clearly what options are available. Sometimes the most prudent option is to do nothing. More times than investors realize, the best strategy will involve the use of several strategies combined to engineer the best possible end game for the investor. Things don’t always come out just ‘this way’ or ‘that way’. Go figure.
The proper approach to the analysis of any move involving your real estate investment portfolio is legitimately analogous to science. An honest scientist may have a strongly held belief about a particular theory, but will brutally test that theory with one result in mind: Finding the truth. He’s just as happy to learn his theory proven incorrect as he would be to have had it upheld. He knows that no matter what he does to bias his experiments, he’ll never ‘prove’ water ain’t wet.
Don’t I wish that were so in the world of real estate investing.
The analysis done to uncover if A) A move should be made. And B) what that move should be — MUST be executed without a care in the world about the results. It is what it is. Executing a strategy ‘cuz it’s the way you’ve always done it, is frankly, absurd. If you’ve always used a worm as bait to catch fish at your local lake, and insist on the same procedure when at sea fishing for tuna, the consequences of your stubborn mindset will find you without any tuna, but still very tired and sunburned. 🙂
If it makes ya feel better, most of the time the analysis allows for relatively easily made decisions. But the key is for the analysis to be completely without bias, or better said, a simple search for ‘what is’. Fortunes have been won and lost as a result of honoring or eschewing the principle of honest, objective, and professional analysis.