This is very personal to me. In large part, the last three years have been spent addressing the problem we all see with Boomers, which is their horrible track record when retiring. That is, those who can retire. Many have no choice but to work ’til they can’t. A huge majority say they’ll work after retirement due solely to financial need.
This gripes me no end.
While retiring at the rate of 10,000 every 24 hours, the vast majority simply don’t or won’t have the income they envisioned decades ago, regardless of the hard work and discipline they so consistently demonstrated. For me, this is heartbreaking on more than one level. What makes it worse is how completely unnecessary it is.
Imagine you’re retired with Social Security of $1,500 monthly, a free ‘n clear home, and $100-500,000 in savings/or your 401k/IRA. If the lion’s share is in your retirement plan, the typical return is gonna be less than 5% annually, usually around 4% give or take. Let’s say half a million bucks is your reality. If retirement is around the corner, how does $20,000 a year before taxes make ya feel? Are ya gettin’ all warm ‘n fuzzy? No? You ain’t the Lone Ranger. Retirement is beginning to look a lot more like a life sentence for many in this exact position.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
But, What If . . .
. . . you were able to safely acquire discounted notes yielding 12-15% cash on cash?
Higher if they should pay off early. Imagine if every $100,000 you had at retirement was earning say, 13% a year. In the above scenario that would generate an income of around $65,000 a year. That’s what we in the business call ‘Having an empirically measurable impact’. Let’s stop and review the difference in the life of this Boomer that this change would occasion. This couple would have gone from $38,000 a year before taxes, to approximately $83,000 a year pre-tax. Reflect on the difference in lifestyle that would allow. Financial anxiety is significantly reduced. Travel to see family and for fun is back on the table. The every day cost of living is no longer a stressful daily grind.
But, What About the Risk?
Experienced and professional note investors understand what it takes to mitigate the risk in buying discounted notes secured by real estate.
Still, understand that double digit returns don’t come without risk, and don’t ever let anyone tell you otherwise. It’s called risk capital for a reason, right? Right. OK, so you’re interested in hearing more. Where do I go to find notes that won’t end up being the end of my retirement dreams? And how in the heck do I decide which notes to buy? If you’re not an experienced professional, I’ll offer a couple rules to follow and never, as in never ever, break.
1. Don’t operate on the Do-It-Yourself model. DIY with notes will put most folks in the financial ditch before they realize there even was a ditch. The only thing worse than retiring on SS plus a lame return on a relatively sizable sum of money is losing most if not all of your sizable sum. DIY is one of the fastest ways to make that happen. Read all the books you want. Go to all the seminars too. Then ask yourself: Am I willing to bet my quality of life after retirement on what I learned by reading and note taking in seminars? No? Excellent answer. 🙂
2. Invest in and buy notes from funds specializing in them. Duh. Captain Obvious rides again.
I wrote on how notes can work for you in this post just a few weeks ago.
Gettin’ from Point A to Point B has been far too difficult for the typical investor wanting to include notes as a vehicle to retirement. But first, please allow be a chronological digression.
From the 1970s on, my firm brokered both real estate investment property and discounted notes secured by real estate. In the early 80s Dad got real serious at lunch one day, bringing up what both of us already knew. I was under time pressure virtually every day just keepin’ up with both the real estate and note needs of our clientele, and their Purposeful Plans for retirement. He made the judgment call that from that Friday forward, we were only gonna offer one of those services. At first I was stunned, but as he laid out his case, I had nothing with which to retort.
A Lesson We All Needed To Learn Young
When I said we could hire someone to do notes, he smiled. “Name one guy at your knowledge level or higher that you trust like family.” I immediately knew I was dead in the water. Yet, as I said at the beginning, I’ve spent the last three years searching for my own Holy Grail — note experts in the elite class of professionals. And I found ’em. One of the most knowledgable writers here on BiggerPockets, Dave Van Horn, is indeed experienced, knowledgable, and very skilled when it comes to discounted notes secured by real estate.
In fact, here’s the most recent evidence. It’d take 1,000 words to describe all the places I turned down as a source for Boomers to acquire these sorta notes. But Dave’s firm, PPR, is my choice. I strongly recommend you check them out. Their continued success is based upon the only thing that should matter, the reputation they’ve earned through years of performance on literally thousands of notes.
Believe me, I never in a million years thought I’d be sayin’ this. But note funds, at least in my professional opinion, are the way to go when it comes to investing in notes secured by real estate, and bought at a discount. The very fact that these funds are regulated by the SEC, and remain in existence only due to the earned reputation of the fund managers, is why I like ’em as a much preferred source. Sure, you can buy notes in many other ways and do exceptionally well. It matters greatly that the reputation of fund managers is so crucial, as it sets the bar for performance. Funds only succeed as long as they perform, and their reputation remains solid.
Notes Can Make a Huge Impact for Boomers.
The difference in income can literally be profound. I started this quest the day after a retired couple told me their story. The short version is, due to their refusal to eat into their nest egg’s principal, they could no longer afford to visit their son’s family and grandkids in a contiguously neighboring state.
At first the son sent them funds for the trip, during the holiday season, but as times got tougher, and his own family budget felt the pressure, he could no longer afford it. Imagine being retired, with six figures in the bank. Yet, you’re so afraid of eating into the principal, knowing the consequences of that slippery slope, that you literally can’t visit your grandkids on Thanksgiving. The difference for this couple in a note fund, even if they only benefitted from the preferred return, and never bought a note, would be more than significant, to abuse understatement. If they did buy some notes the impact would deepen.
Nobody should spend decades doing all the things they thought were right, only to wind up as prisoners in their own home. And that’s exactly what’s happening, and will continue to happen to those in my generation. For many Boomers, it’s my heartfelt belief that note funds could be their solution. Surely real estate wouldn’t be the answer at that point, as time is no longer their friend. And frankly, at their age they need more bang for the buck, and less time spent watchin’ over things.
OK, I feel better.
Fund offer preferred return, the ability to acquire your own notes, and the relatively superior safety of knowing their reputation is everything to them.
Take a look and see for yourselves. Retirement is for enjoying life to it’s fullest.