Let’s first agree that the various levels of quick turn strategies are profitable when they work out, but for 90% of practitioners, aren’t effective in the arena of retirement planning. In fact, for at least a significant sized minority, it literally hinders the ability to retire well. Experience shows this isn’t a popular stance, but in my experience, both hands-on and with over 35 years of firsthand observation, those eschewing long term strategies don’t measure up at retirement.
On the other hand, those who mixed the two approaches synergistically often kicked major retirement booty. Just wanted to get the short term debate out of the way before getting serious about real estate investing for retirement. Ironically, the vast majority of long term investors fail to achieve much better than mediocre retirement results.
Why is that?
Let’s eliminate the normal answers, even though they have serious merit. Lack of planning. ?? Poor execution. ?? Inadequate capitalization. ?? You probably know the rest of the knee jerk answers.
There only just a couple basic reasons investors don’t do well at retirement.
#1 They insist on remaining in their own local market.
This is a deadly decision for most investors, as most markets simply won’t provide what’s needed to make it through the long haul. Know what folks selling income property in less than blue ribbon locations call the neighborhood? Things like ‘solid bread ‘n butter’ area. Or, ‘blue collar’. Then there’s my personal favorite, ‘workin’ class neighborhood’.
Lesson: Sacrificing location quality for price or front end cash flow is foolish, short term thinking. It is one of THE main reasons investors find themselves sorely disappointed when it comes time to retire. For some regions it’s virtually the impossible dream to buy a well located income property that will survive the trip to retirement as planned. Yet, it never ceases to amaze me, the number who insist, sometimes belligerently, on remaining local. I’m here to tell you, if you’re among that group, you have some tremendous options on your menu. Don’t maim your own retirement by stubbornly insisting on remaining local.
#2 They refuse to be flexible when circumstances change.
True story — Had a client back in 1999 who owned a duplex in the area immediately surrounding the local state college. Analysis of his situation dictated that a tax deferred exchange was in order. It was a no-brainer call. He did just that, ending up with far more property, all in good or better than good locations. The plan then called for a 5-7 year hold. The thinking was based on well known local market cycles at the time. In just over a year we’d traded him again — as in all three properties he’d so recently acquired. Um, things had changed. His buddy at work, also a client, thought it made more sense to let his properties keep simmering. Big mistake.
By adjusting to the now crazily appreciating market, the first investor turbo charged his capital growth rate by going from a 40-50% equity position to a 20-25% position — twice in less than a year and a half. Let that sink in. Meanwhile, his friend’s equity grew at literally half the velocity — and during one of the most impressive run-ups in local market history.
The difference between the two investor’s ending equity as of today, post bubble, and using today’s values, post correction? Just under — wait for it — $500,000. In today’s market — and in the region I prefer — that additional half million in equity would, over the next 10-15 years max, provide the following.
$1.5 Million in additional net worth — assuming NO appreciation over the 10-15 year period.
$110,000 a year in additional retirement income — assuming 0% increase in NOI over the 10-15 year period.
That was the difference between rigidly adhering to an original plan, and adjusting to changing market circumstances. Think over $9,000 a month — in addition to everything else he’d done — will stick in the craw of his buddy later on? Betcha it will.
Those are the two major factors I’ve seen put more retirement plans off the tracks than all the other factors combined.
Obstinately remaining local against all evidence leadin’ you Outa Dodge + the inability or plain unwillingness to adjust flexibly with ever changing market realities is the surest way I know to cripple what coulda been, in fact shoulda been, a truly magnificently abundant retirement.
For most it’s not too late. But that sound you hear? The one gettin’ louder each day?