The Time Value of . . . Time

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First, let me fully disclose I’m an OldSchool guy down to my DNA. My mentors were so old they used to tell me they never called it OldSchool. It was just ‘School’. The youngest among them in the late 1970s and 1980’s was over 60. It puts a smile on my face just pondering their reaction to learning a few of the super high risk approaches some modern day real estate investors use to acquire property. They warned me back then what was gonna happen. I listened. I learned. But I didn’t apply their lessons. I lost. I relearned. Been applying their wisdom ever since. No more losses. When the risk is overcome while flyin’ against fundamental investment principles, and the acquisition turns into a win, all is well. However, most of the time it simply doesn’t work. High risk is high risk is high risk. Who knew?

Sure, the purveyors of these high risk strategies tell us that their superior experience, skill, and knowledge is what converts high risk to more acceptable levels. OK, I’ll buy that — for less than 5% of the real estate investor population, probably WAY less. The rest? They lose whatever they had invested, many times still owing money. To add insult to injury, more times than not they trash their credit, which puts them on the investment sidelines. ‘Course, at that point the high risk approach to real estate investing becomes their only option.

I’ve seen too many families broken up due to this approach and the financial chaos that almost inevitably results. Those promoting these often financially suicidal approaches don’t wanna talk about that much.

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This Isn’t About Right and Wrong

This is about regular folk reading the various success stories of field tested veteran investors and deciding they can produce the same results. For every investor successfully using some formulaic, ultra high risk approach to buying investment real estate, there are, in my experience, dozens who crash ‘n burn unceremoniously. How did I come to that view? I’ve been talkin’ to ’em for over 35 years. In fact, since the mother of all bubbles burst I estimate their numbers have exploded.

The Ultimate Consequence is the Forfeiture of Time — Present AND Future.

The ultimate penalty these people suffer isn’t always the loss of what little money they may’ve had or the hit their credit takes, sometimes a knockout punch. Whether the risk was in lack of skin in the game, or something else, the loss can be devastating. It’s about time.

Meanwhile, back at Birthday Ranch, the pages on that relentless calendar keep turnin’. If you’re young you can be foolish a few times and still recover. That’s what the DIY crowd talks about all the time. I know, cuz I’ve see me do it. Thing is, most of these strategies aren’t just foolish for the vast majority of regular folk who only wanna get started in real estate investing. They’re often the last nail in the coffin of what might of been a pretty decent retirement.

Talk to a 54 year old woman I spoke with a several years ago who bought one of those eBooks about how to bootstrap herself into wealth buying real estate. The devastating sense of defeat in her voice will break your heart. It broke mine. What made it worse was that there was no advice I could give her that was gonna change her new reality. And what’s that gonna be? Here’s what she said, closely paraphrased to the best of my memory:

“I guess I’ll work into my 70s so my Social Security check will be as much as possible. I just know I’m gonna end up living with my daughter and her husband. Never thought that would be me.”

Please, Allow Me to Speak Some Captain Obvious Truths.

Look around you. See any real estate you can buy for nothin’ down that is in even only a slightly below average quality? No, ya don’t. Why is that? Cuz troubled properties in decent areas are bought by investors with horsepower. They’re generally not acquired by zero down buyers using so-called ‘creative’ financing. And pullleeaase don’t label me old fashioned for that statement. Back in the day, when truly creative financing was the only avenue to survival, we in SoCal and a few other densely populated markets showed the rest of the country how to do it. We weren’t super smart by any stretch. I know I wasn’t. We were desperate though, and that’s the truth of it. We brought the wraparound mortgage into the real estate investment vernacular.

The ‘subject to‘ transaction became almost a default strategy not only for investors, but for homebuyers too. Boy, did they get slaughtered. Aside from the few exceptions out there today who’re openly advising those taking title to property subject to existing loans to be straightforward with lenders up front, the subject to approach is now considered by many to be safe. A fantasy if ever there was one. Again, I’m not gonna belabor it, but this latest generation of subject to buyers will be systematically decimated by lenders when the interest rates rise to a point that provides enough incentive to do so. I know, cuz I’ve seen ’em do it. They’ll show the same emotion as a surgeon does when makin’ the initial incision on a patient. God bless those who counsel transparency with the lenders. I respect and admire you tremendously.

Knowledge gaps + flaunting fundamental investment principles – time, almost always equals a sad ending.

We can learn from our mistakes. I’ve lost three properties, the last one in about 1982 or so. All three were lost cuz I thought I was smarter than the market, and worse, smarter than investment principles. I call these principles the physics of investing. Fortunately for me, my mistakes ended at 31. But what if I’d been 61? I shudder to think of it.

At some point there’s not enough time to make up for our lack of knowledge, wishful thinking, or just plain stubbornness. My third property loss at 31 was due to combining all three, the triple crown. Fundamental principles and time, when combined, are undefeated. Use them for your benefit, or go against them and pay the price. Here’s the sneaky thing about investment fundamentals, at least a few of ’em. Sometimes we can go against ’em and still not lose, even win. But over time — their most powerful weapon — they’ll win the war, regardless of losing a battle or two here ‘n there.

Time can be your best friend, a fond acquaintance, or your fiercest enemy. But for middle aged and older folks, though it might not be as good a friend as it once was, it needn’t be your enemy. We can’t make up time when it comes to retiring. There are too many outside factors for which we harbor little or no control.

Stop buyin’ into the myth of no risk, no skin in the game, or end runs around contractual realities. You have a better chance of coming out a winner at the roulette table. Way better.

Avoid making time your enemy at all costs.

Photo: János Balázs

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Hi Jeff,

    Good article but could you please give detailed examples of high risk strategies and their dangers?
    I saw “no money down” and “subject to” in your article. The first one, for example, may or may not be dangerous depending on the deal’s structure. If a property is bought at 30% below market and with no money down is this still a high risk? The buyer has 70% LTV after everything is set and done.


    • Jeff Brown

      Hey Nick — The post was meant to be more conceptual in nature. That is, to discuss the principle of ignoring or respecting risk when it comes to investing in real estate, and the consequences that follow. Detailed examples is another post altogether, but here’s the short version. 🙂

      0% down purchases are on the A-List for victims. The margin of error is clearly eliminated. Flippers will quite rightly tell ya they’re sometimes doing no-down deals, but at prices well below the market. Therefore, they reason, the risk has been significantly reduced. Ask those employing that approach in 2006/07. Oops. On the other hand, as I said in the post, the real pros doing this know their markets like only experienced experts do. Thing is, the other 95% only think they know enough to cover their bets.

      Subject to is a contractual issue from start to finish. Bank loans, the vast majority anyway, have a very clearly worded clause. It says if the borrower goes outa title, (yes, even with a land contract), the loan can be called by the lender, to be paid in full. They’ll do this when they perceive the existing note’s interest rate so much lower than current market rates, that it would be silly NOT to call the loan. Alarmingly, tons of people believe as long as they make the payments, buying property ‘subject to’ the existing low interest loan, purposefully avoiding the process of approval in a formal loan assumption, will protect them from this experience. It won’t.

      Aside from these relatively high risk approaches, Nick, there are many, many more. Most of ’em share at least one factor, which is a deadly lack of experience and or expertise. The only thing worse than entering into a high risk situation is not being aware you’re doin’ it.

  2. @Jeff_Brown You are so, so right — and I’m not just saying that because I might be even older than you. 🙁 — and like you, been messing around with real estate for lo, these many years.

    The main difference between a pessimist and a realist is experience. Sadly, the folks who suffer from “…lack of knowledge, wishful thinking, or just plain stubbornness” are the same ones who, through lack of experience, are typically convinced that none of this applies to them. It upsets me greatly when I see certain “guru coaches” prey upon some these would-be investors, assuring them they can become millionaires with no cash, no credit, no free time, and no serious commitment to learning how money and investing work. You just gotta believe, and everything will fall into place, or into your lap — or maybe on your head.

    Your advice here is so good that I hope you’ll load copies of your article into a crop duster, and drop them as leaflets across the country. But wait, no — that might be too “old school.”

  3. I read the article and still don’t understand what kind of deals are risky, other then the 1 sentence you wrote about subject to.

    All I kind of understood was that you are real smart, and most people are dumb.

    • Jeff Brown

      Thanks so much for your insight, Adam. The post was about time and how high risk can affect it for real estate investors. Otherwise, I woulda titled it ‘What kinda deals are, you know, risky and stuff.’

      I’m not smarter than anybody here. I’ve just done the same job for over 40 years. You tend to pick up things over time, and ya don’t even need to be real smart, either.

      • Jeff,

        I was in a hurry yesterday, and re-read my comment and I didn’t mean for it to sound negative.

        From what I understand, the due on sale clause is executed less than 5% of the time? I can see a scenario growing, where a large percentage of home owners have refinanced at 3-4% rates, and in a couple of years an investor could be holding a large number of low interest rate properties in his inventory.

        It’s hard to determine if it’s more profitable for a bank to call the loan due, or go thru the foreclosure process. If interest rates have risen to a much higher point, then you could argue that real estate prices have dropped and the bank could take a hit if there is not sufficient equity.

        I’m no expert, but I would guess it would be safer to hold only a small percentage of your subject to deals long term, and use hard money, wholesaling, and flipping to get your money out quick. Stay away from signing your “subject to” properties, to lease options, and try and use sandwich lease options whenever possible?


        • Jeff Brown

          You’ve got it pretty much, Adam. The 5% figure, however, has no relevance. Here’s why. When rates are low, and the loans taken over in breach of contract are being paid, they tend to lay off, which is logical most of the time. However, when rates go to 2-4% higher, that percentage will skyrocket.

          Think of yourself as a lender. You have 100 loans out at 3.25-4%. 30 of ’em have been taken over in flagrant breach of the loan contract agreement. If you’re now able to lend at will at 6.5%, what would you do? If it was me, there’d be 30 owners opening letters from me giving them two choices. One would be to come in and formally assume the loan at the prevailing rate. The other would be to pay the balance off in 30 days, in full.

          They’d know the third choice, right? 🙂

        • Right, the 3rd choice wouldn’t be the end of the world. I heard they sometimes charge you a 1% fee, and the smaller institutions will catch these better then the larger ones.

        • Jeff Brown

          The third choice is foreclosure. As far as the little vs large lenders goes, they all learned from the last time they gutted the subject to buyers. This time, though many are in classic denial, there is virtually no place for these buyers to hide. The lenders will find ’em while sippin’ a cool one on the veranda. 🙂

  4. jeffrey gordon on

    Hey Jeff, timely article! Just watched the local saw log market go from $282/MBM last year to $445/MBM early this spring and has now been dropping like a stone even though home builder stocks keep growing towards the sky===What is wrong with that picture? Commodity price falling rapidly after 50%+ one year appreciation even while one of the primary users of it are seeing their stock prices ramp up?

    Having spent some time working in Japan in the late 80’s–I was in Tokyo when Nikkei hit 39,000 in 1989–I am watching “Abe” money printing make Ben look like an amateur all the while their stock market is up 50% in the last six months while bond prices were up 100% as well and the yen is depreciating as expected as they race the Chinese to the bottom by discounting their products prices around the world.

    So yeah, given almost all time lowest US RE interest rates and losey/goosey loan approvals on entry/mid level borrowers combined with lenders still playing games with REO inventories, why would any sane experienced or inexperienced investor take on any more risk by using due on demand financing in this market?? Even if they plan to flip the deal in the near future–that saw log blast off and fall back to earth is probably faster than the RE market might see, but I sure would not want to end up having to hold a property longer than expected in a falling market with interest rates rising and no equity when I have a call on demand loan.

    If folks dont get why, they should be using conventional financing.


  5. Loretta Steele on

    Jeff, as always a great article. It should be read by all new investors. I will be passing it along to some of my students that have been talking about investing.

  6. Chris Clothier

    Jeff –

    I guess I would hardly be described as an old-timer at the age of 41, but I’ve been through enough as an entrepreneur and real estate investor to pat you on the back and say thank you for a great article.

    Wishful thinking and high-risk investing both cost me dearly in the past and I appreciate good common sense – yet in your face – advice like this. I will be sharing this on my own blog and social media.

    Thanks – Chris

  7. jeffrey gordon on

    Jeff, something tells me Chris’s comment about “in your face” pales in comparison to some of those sessions you had at the 19th green with the boys in SD???

  8. “…they never called it OldSchool. It was just ‘School’.”

    That’s the best part!

    When I told friends of mine that my previous house purchase was governed by not wanting to spend more than 25% of my take home pay on the monthly house payment, they did a double take one me! It was way below what the bank would have loaned me (definitely not what one hears on those HGTV shows). I once shared that with Jeff Brown on the phone, and he said I was “old school”. That was the best compliment I had received in a long time!

    Some things change, like accessing info on your phone a la the internet, but some things stay the same, like gravity, the laws of compound interest & arbitrage, and being house rich/cash poor. Oppose them at your own peril!

  9. Great article Mr. Brown and very timely for me. My comment is more about risk than convincing myself or anyone else it is OK to buy subject too an existing mortgage. I buy very few properties subject too the existing mortgage; however, there are two instances when I will. The first circumstance is when I am going to rehab the property and sell within 6 months or less. The second circumstances are when there is a decent amount of equity in the property, the current payments to the bank plus my cash to rehab are low enough to make sense when compared to market rents and the interest rate on the note is high enough to buy me some time, and my intention is to rent the property. I say rent the property because I don’t think I should take a large payment from someone to lease the property from me with an option to buy later. The lessee should not be taking on that risk.

    Exit strategy is also important to me. I have no idea how many I will be able to refinance, pay off or sell when the time comes, so I rarely buy a property subject too the existing mortgage to hold long term. I will and have bought them though.

    We all have our own risk tolerance. I am assuming values will hold steady or rise, I am assuming I will be able to sell quickly based on equity level if necessary and so on. I have some of my own money in these deals and certainly don’t want to loose it. I could be totally wrong in my risk assessment of what I am doing, but I think i am making sound decisions. Time will tell. It is really all about risk. I understand my risk and can’t whine and complain if i loose on these deals.

    Again wonderful article Mr. Brown and thanks for contributing to keeping me grounded in this real estate game.

    • Jeff Brown

      You appear to me, Gary, to be one of the 5% who understand the high risk approach, and have installed strategies to deal with them prudently. You also seem to have effectively reduced risk when possible. Thanks so much for the kind words.

  10. Aloha Jeff,

    Good to see you still kicking those tires!

    I like the new video format on your website, but I also miss your witty and wise written posts, so it was with pleasure to see you in writing here, with your down home country flavor – didn’t know they grew that over in San Diego until I met you!

    Meanwhile, I am still pretending not to get older and am juggling our properties over in Las Vegas, maybe planning to mix in some Hawaii properties. I can already hear you doing the cluck cluck (or is that a shuck it shuck it?) about Vegas and Hawaii. We’ll run numbers later, okay?

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