I coined that incredibly original phrase about this time last year in a post on my own site. The post duly noted that the convergence of three factors, crucial to long term real estate investing. Interest rates at historically low levels, price/rent ratios mimicking 1958 textbooks, and blue ribbon locations sporting smallish newly built income properties, have become bosom buddies since around early 2010. That’s two years of investing in the only perfect storm I’ve ever witnessed first hand in my career, which began in 1969.
I strongly believe there won’t be another in my lifetime.
Those having done this as long as I, realize how rare this really is. They remember the recession of 1981, but not fondly. You think this one’s been destructive? It certainly has, but it doesn’t pack the same sorta ammo that one did. Try nearly 15% inflation, 20%+ prime rate, and an FHA rate of 16.5%. That wasn’t a perfect storm. It felt like it was an earthquake, tornado, and tsunami holding hands while running through the country. Add all the usual downsides to a recession and you can begin to realize the difference in what we’re mired in today.
I’m not pointing this out to imply a parade of celebration is in order. Far from it. But having lived through the five or so recessions before this, and this current downturn, I’ll take this one — when lookin’ through the real estate investment telescope. It’s not even close, people.
Real Estate Investor Retirement Recovery Window
It’s my belief we’re finishing the second year of this perfect storm. I’m fairly certain, though not anywhere near SlamDunk sure, that 2012 will also be part of this window. Beyond that is anyone’s guess. It depends upon WAY too many factors, most of which are political in nature, not to mention about other continents’ economies and politics. It’s hard to read a cracked crystal ball, the condition of mine for a few decades now.
I used the word recovery cuz I’ve found real estate investors fall into a very few categories. There’s the short term crowd. They think they’ve died ‘n gone to Heaven, which is true to a certain extent. It’s also the reason most of ’em, sadly, will realize long after the horses are outa the barn, that they missed the long term window of real estate investing. Sure, they’ll have better homes for their families, and shiny cars and such. But they won’t have invested long term, at least the super-majority of them. They’ll pretty much miss out.
Then there’s the gotta buy local crew. If they’re from most parts of Texas and a few other select markets, it won’t matter much. Since most aren’t though, they’ll sentence themselves to below average to mediocre retirements. Seems being able to drive by their properties was more important than a superior retirement in the decision making process. I’m being a tad sarcastic about that, but since we’re in the second freakin’ decade of the 21st century, you’d think they’d adjust. That sounds harsh, I know. But if they don’t snap out of the love affair with their crummy local market, they’ll learn what it’s like to work into their 70’s. It’s almost epidemic in San Diego.
The group that may be hit the hardest are those insisting on combining some of the no-down formulas in the hardest hit markets. Ask investors in Vegas and many parts of Florida how that’s been workin’ out for ’em lately. I have, over and over, and it’s always sad. Meanwhile, those who told them it was the thing to do are long gone. Their retirements are now not much better than a pipe dream. Not only will the so-called income stream not be there, but many have already lost the properties along with all their hard earned investment capital. It’s this group who I suspect will form a new demographic — former homeowners/investors renting small homes/condos and workin’ ’till they just can’t any more. Beyond sad.
Those who realized how relatively easy it is now to buy investment property hundreds if not thousands of miles from home, are the group who will reap the retirement benefits. I call them the open-eyed crowd. Whether they used cash on hand, or traded the equity from local market investments, they’ve capitalized on the existence of this perfect storm. They see that it literally is a Real Estate Investor Retirement Recovery Window. They also realize it’s probably gonna close sooner rather than later.
Meanwhile, this last group, the ones with their eyes wide open, are tradin’ equities into, or buying the perfect storm type of income properties. They’re lockin’ in super low interest rates, while getting historically strong cash on cash returns. All this and most of ’em are only puttin’ down 20-30%. If anyone thinks this is gonna be the new norm, they’re sadly mistaken.
It’s called a recovery window for a reason. Just as the window opened, it’ll close. Once that happens, there’ll be two groups left. Those who loaded their real estate investment portfolio up with perfect storm type properties — and those who wish they had. Your 401 ain’t gonna cut it. Social Security? This isn’t a standup comedy routine. Your retirement has a chance now. The window is open. Are you in, or are you out?
Birthdays are gonna keep comin’ and goin’ regardless of your decision. Tick tock.