As many have, and no doubt will, I learned this lesson the hard way. My mentors were of epic quality, as was my luck in the opportunity I had to learn from them. Still, there were far too many lessons I learned the hard way. Dad once told me I was far too smart to’ve been such a slow learner when it came to real estate investment. He was especially nonplussed at what appeared to be a waste of world class mentorship. Lookin’ back, I’m a bit red-faced. My mentors allowed me to fall on my face all the time. They would then ‘invite’ me to join them for some ‘fries ‘n laughs’ at the 19th hole. That was code for ‘it’s woodshed time for Jeff’. This was particularly true when one of the immutable laws, as they called them, was shamelessly violated.
It was never less than brutal — applied with love and affection, of course.
Real estate investment strategies
- There’s Turn ‘n Burn. There are several denominations under this tent. But they all buy, then sell as quickly as possible.
- Buy and Hold — never to sell, as in, never, ever.
- Buy, hold, and allow guaranteed appreciation to lift you to your dream retirement.
- Then there’s the ‘reformed’ Buy ‘n Hold crowd. They’re allowed to refi for cash in order to buy more real estate they’ll never, ever sell.
- The ever popular ‘Must be able to drive by’ sect. Thou shalt not invest in outa town property.
- Last, but certainly not least, the super strict ‘magic formula’ toting, ‘gotta be a house’ faction.
All of these strategies can be used to create impressive short term profits, or long term capital gains. Just ask those who swear by ’em. Problem is, they don’t always work. When the factors drivin’ your particular real estate strategy leave the building, the magic tends to go with it. That’s when those who worship at the altar of that particular church wonder what went wrong. After all, they didn’t sin. They followed the Book of (name of strategy goes here), chapter and verse. They were betrayed!
It comes down to common sense.
We can use endless analogies for this one. Take baseball. Stealing bases is often a good thing — except when it’s not. Try gettin’ thrown out stealing with two outs, the game on the line, and your best hitter at the plate. An attempted steal at that point is beyond silly. Most of us love ice cream, but wouldn’t dream of dippin’ our filet mignon into it. It’s all about what works in what time context.
Those who insisted on buying fixer uppers in SoCal or similar markets for a quick profit in 2007, lost their shirt, at least most of ’em did. What passed for a great buy in ’07 as a fixer, was sometimes more than the fixed up version was worth in ’08. Oops.
Those who bought to hold forever, ignoring years of relatively high appreciation, missed out on massive capital growth by way of their inaction. I’ve literally seen, first hand, dozens of cases where the investor missed out on over a million bucks. I’ve shown them by way of invoking empirically historical fact, and it’s never pretty when the light goes on. Talk about ‘a million regrets’.
Ask real estate investors who’ve opted to remain in markets like San Diego the last several years, about their ability to drive by all their investment properties. Their portfolio’s equity has gone down so much they hafta look up to see down. (badda boom) We won’t even talk about the ridiculous price/rent ratios. Yeah, Grandpa was really on to somethin’ with the whole ‘gotta be able to drive buy it’ thing, wasn’t he? The Padres will win three consecutive World Series Rings before their portfolios get back to where they coulda, shoulda, woulda been, but for their faith in the holy strategy strategy of stayin’ local no matter the cost.
The #1 Commandment governing real estate investment strategies.
THOU SHALT TAKE WHAT THE MARKET GIVES YOU, WHEN IT GIVES IT TO YOU, USING THE METHOD(S) IT ALLOWS.
In practice that means buy houses when the market gives you houses, and buy multi-plexes when it gives you that, etc., etc. Make use of tax deferred exchanges when it makes sense, and ignore it when it’s silly. Tax deferral ain’t a religion, and 1031 isn’t the magic number sent down from the mountain. Sometimes it’s the perfect move. Sometimes it’s the dumbest thing on your menu.
That goes for virtually all strategies. Strategies designed to exploit clearly defined scenarios. Absent that script, they’re often more than ineffective. We can all easily observe that when an ill-advised strategy is put into play, it can be downright disastrous, even ruinous.
If I’d listened to my mentors over 30 years ago, I wouldn’t have had to learn this the hard way. It was a slaughter.
Learn the easy way.