Attacking The Perfect Storm

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Manage episode 200480530 series 2124446
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What the heck does attacking the perfect storms even mean?! First, assume it’s all positive.

Transcript: Recently I spoke at a special event where I was asked the question: I speak a lot of this so-called positive perfect storm. Doesn’t this mean we should all go out and buy, buy, buy real estate like crazies until this perfect storm goes away? Well yes and no, but let’s define what the perfect storm in the first part. You go all these storms, and by the way, they’re all positive from the view point of the real estate investor. One storm is low interest rates. Another storm is very attractive rent price ratios. Another storm is the ability to buy new or newer rental income properties residentially in great locations without paying the premium we used to pay before the bubble burst. Then there’s that last part of that perfect storm that says not only are they very well located, but like I said earlier, they’re new or near new, where people around the country in most markets, including my own in San Diego, where we consider a 30 year old building just comfortably broken in. We haven’t had new construction of, say, two to four unit buildings, which is what most investors buy, Reagan was in office the last time they built significant number of those buildings in my county. Now you’ve got low interest rate, rent price ratios that are very nice, well located buildings that are not old. Should you buy as much as you can then? Out of ten people, I might give three different pieces of advice because, like I said earlier in many of these videos is that different set of circumstances for Fred makes him do something totally different than Mary should be doing. Let’s say you have a bunch of capital and let’s take something a little bit out of the ordinary. You’re 52 years old. You know you’re going to retire at 67. You’ve got 15 years. That doesn’t seem like very long but you’re a high income earner. You’re averaging $250, 300,000 a year and you know that for the next 15 years it’s going to be that or a little bit more. Here’s what you do. If you can buy all that real estate you have to weight it against I can have a Roth IRA or I can move things into a Roth IRA. Do I start buying discounted notes from inside that Roth IRA. Do I buy notes in my own name? What do I do? Here’s what I tell people. How much a month in cash flow from all the properties you own, and family budget money that you can comfortably set aside to service your retirement plan every month … You can just spend like you don’t care. Then the other thing is, Do you have other sources of income in which you’ve invested? Of course the main source would be note income outside of a qualified retirement plan. In other words, you bought it in your own name. The plan would be, how much real estate can I buy, put 25, 30% down, and retire the debt on all of them by the day before retirement hits 15 years from now? Can you do that in 15 years? I have clients who, because of their note portfolio, they own a small business that is a big producer, and they have cash flow from many properties, but if they buy more property and acquire more debt they have their real estate portfolio’s cash flow, which is impressive and significant, they have the note payments coming in where they have to pay taxes on them, they own them in their real name, but they take that and add it to the cash flow. Then they have their family budget that says they can take x dollars a month, add it all to that, and then they start attacking those loans. They can buy one, two, three. I’ve had people buy six, eight, 10 properties in a six month period and they’re able to retire all five, three, eight, 10 loans way before 15 years because they have all that income that they can assign to the payoff of the debt. Now what if they paid it off in seven and a half years? They can rinse and repeat. They refinance and now they got a ton of money. What are they going to do with that? Are they going to buy more real estate? Are they going to buy notes? Just one or the other or both? I don’t know. It’s different for each person. Let’s say they go out and refi a bunch of properties and they end up buying another four or five with, say, 30% down. We are in the perfect storm still. They can rinse and repeat again. They might do that two or three times before that 15 years is up. They might do it once by the hair of their chinny chin chin. My point is this: Take advantage of the incredible positive factors, four of them, in this perfect storm where all four have come together. This is historic. Don’t take this too lightly. I got licensed in October, October 15th, 1969. This October will be 45 years I’ve been licensed. I’ve never seen this perfect storm. This is the first. I don’t expect to live to see another one like this. It’s that rare. Take advantage of it if you have the capital. Look at everything. Don’t think because Jim does it that way that Mary should do the same thing. Don’t think you should do it this time and then when you get things free and clear, do exactly the same thing. You never know. Things change, but you take advantage of the perfect storm. You take advantage of it sooner rather than later. You have your plan set. You have flexibility injected into that plan so that you can move as needed, and you execute that plan boringly. You do that and you do that, and before you know you’ve got more free and clear property than you that you would, you own more notes giving more income both in your own name and in a Roth envelope than you thought you ever would, and when you retire your only disappointment is you can only visit one island at a time.

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