Author: Jeff Brown (page 13 of 15)

by Jeff Brown

Real Estate Investments Broker

Author website

Though I’ve written posts on this subject before, sometimes my zeal to spread the word is renewed by contrary opinions. Of course, when it comes to how folks feel about this subject, you find that very little real analysis was used. I think the problem at times is exactly what analysis is done. Most folks will say putting their money into the bank for a 2-3% return is inferior to paying down their loan because if the interest rate is say, 6%, then that’s what their money is earning. True enough. But that’s the wrong analysis to say the least.

Since it will take literally hundreds of thousands of dollars to pay off that very loan, why not take all that money and grow it at 3-10 times that rate? How you look at this question could very well determine whether you have a great retirement or live out a self-imposed life sentence.

My own grandpa passed away 15 years ago. He was a well known artist, one of those rare breeds who made a decent living while still alive to enjoy it. His paintings still sell for $5-30K apiece. He painted until his health went down hill. He was in his 80’s. It’s a good thing because he and Grandma had their monthly Social Security check plus money from sold paintings. They worked hard to pay off their home loan, which was under $20K upon his death. Yet they would have been behind the 8-ball if he hadn’t been able to continue painting as long as he did. They were inches from having their Depression-based dream of a free and clear home.

Grandma couldn’t afford to live there when Grandpa died. (Though she still would have moved due to her age & heath.) She had to rent out the house to supplement her income, while moving into one side of a duplex next to one of her kids. She was now renting, while owning her home which was just about debt free.

And she and Grandpa did this on purpose.

They lived a frugal life. Their only travel was to destinations Grandpa painted, or Read more

by Jeff Brown

Real Estate Investments Broker

Author website

You’re a married couple in your mid-30’s living in your first home, bought five years ago. You’ve discussed your future, especially as it relates to retirement, and agree that real estate provides a much more predictable potential for capital growth. You have about $20K in your company retirement plans combined. Your cash savings amount to about $8K, held as a cushion and for peace of mind. You realize you have enough home equity to pull enough cash out to begin your real estate investment portfolio. However, you’re not sure about much else. You decide buying a small duplex in your area makes the most sense because they seem to be priced about the same as your home, which is now worth about $300K or so. You contact your buddy Fred who sold you your home way back. He asks what you want to buy and where. Before you know it Fred has half a dozen duplexes ready for your inspection.

This approach should raise a giant red flag, as you’ve now been designated by your buddy Fred, as knowledgeable investors. If that doesn’t scare you, you’re truly fearless. 🙂 You have stumbled upon what I call the Nordstrom’s Shoe Salesman Syndrome, or NSSS. Of course, Nordstrom’s approach is wildly successful as perceived by its very loyal customers — as far as selling shoes is concerned. They don’t sell income properties. I’ve discussed this before.

Your ‘analysis’ of these properties will be superficial at best because you’re looking at money in, money out, and your budget. Nothing wrong with that, as far as it goes. But as a first time investor you should also understand just how important after-tax analysis is. It can go straight to your weekly paycheck if you understand how it works.

If you guys are in the federal tax bracket of 25% and state bracket of 5%, every dollar ‘lost’ through the use of depreciation will act as a producer of positive cash flow. “What?” you ask.

If you purchase one of those duplexes for say, $300K you’ll be able to show depreciation of roughly $12K which will include both the Read more

by Jeff Brown

Real Estate Investments Broker

Author website

This is somewhat of a ‘simulcast’ with my own blog, as I just published a longer piece on the same subject for the second day in a row. I think it’s important.

This is for those investors living in areas like San Diego.

You know, median home price around half a million, and rents for the ‘average’ 2 bedroom rental $1,000-1,300 a month. I’d say if your median home price is over $400K your area probably qualifies.

In San Diego a boring but safely located duplex sells for $480-700K, and a fourplex goes for $750K-1Mil. In the next 10 years those ranges will have climbed, probably significantly. If over the next decade San Diego appreciates at just 3.5% yearly, the top of the range for duplexes will have reached just under $1Mil! And there’s not been a decade in the last four with an average of only 3.5% appreciation in San Diego. Tell me seriously — who is going to consider that a good investment? Unless they flew in from San Francisco they’re going to think the owner is over medicating.

So I see a paradox.

Investors owning rental property in areas like San Diego will see them appreciate, only to find it very difficult locating that last fool who thinks it’s still a solid investment. They’ll get the growth they gambled on, but won’t be able to cash in. Impotent growth. (The name of my new band.):)

The solution?

Get outa Dodge now.

You’ll be happy to know there are a few regions in the country where you can buy property for way less, while also using low down payments. You’ll be back on the growth track, only now you’ll be in control of 2-4 times the property (in terms of value). This will turbo charge your capital growth rate magnificently.

Make use of a tax deferred exchange (1031) to move your equity to one of these lower priced growth areas. Do it now. You’re losing money staying in San Diego or any place like it. And your capital’s future isn’t bright.

Unless of course you think there will be a bull market for million dollar duplexes.

by Jeff Brown

Real Estate Investments Broker

Author website

I’ll say up front that this subject is one maybe better written by Captain Obvious. Yet, if it’s so obvious why are so many investors consistently caught with their pants down? As a real estate investment advisor I’m asked all the time about when to buy or sell. I do not claim to have either a lucky and talkative bird or a working crystal ball. I can say however, (obvious comment coming) that paying attention to the market pays off.

I thought I was a year late getting into both Phoenix and Boise – 20/20 hindsight. I wasn’t late as in miss the boat late. I just didn’t have that little birdie whispering to me exactly when and where to invest. I had to rely on my own experience, research, and judgment. It’s easy to say, “Yeah, I just decided it was time to move my clients to this or that region.” It’s a lot harder decision to actually execute when your clients are looking to you for guidance. Correct guidance.

How often have we all heard timing is everything? In real estate how much would our overall investment performance have been improved had we known in advance exactly when a down or normal market was about to skyrocket? What if you were in East Toilet Seat Rhode Island in 1999 wondering just what you should do with that $50K burning a hole in your pocket? Suddenly a little birdie landed on your shoulder and whispered, “Hey big guy, buy all you can with as low a down payment as possible — in San Diego. The only thing you knew about SD was its predictably great weather.

Your timing would have made you look like a genius. Of course if you were that bright you would’ve traded up a couple times before doing a third trade into Phoenix around the middle of 2003. By that time your $50K would have grown to more than $400K. (drawn from client file) We all know what happened in Phoenix from that point on. You knew it before hand because of your talkative birdie. He whispered again, telling Read more

by Jeff Brown

Real Estate Investments Broker

Author website

First, I wish to make it crystal clear up front that I’ve always looked up to Mr. Stein. I have the deepest respect for him not only because of the life he’s led, but because of the kind of person he is. He’s a brilliant, hard working man who generally has not a negative word to say about anyone. In many ways I’ve used him as a partial role model when it comes to how I deal with people. He’s simply one of the kindest most empathetic public figures in America today. And even though what he said Friday in A Home Truth About Real Estate Investing is mystifying to say the least, my opinion of him hasn’t changed.

He’d just finished recalling the condo he’d purchased many years ago, and that the almost identical condo now, though worth much more, had “not fully kept up with inflation.” He then went on to say the following:

On the other hand, if the same person had bought the Dow in 1982, he would’ve made roughly 10 times the money by now, not counting dividends, which would have meant he would’ve made close to 20 times the money.

In order to avoid any confusion here, Mr. Stein is saying if you’d invested $100,000 in real estate back in 1982 and the same amount in the Dow, the Dow would have outperformed real estate by close to 20 times.

I read the piece over just to insure I truly got his intended meaning. I had. I’ve come up with two potential explanatons for this astounding statement.

• He’s so entrenched in ‘old school’ thinking that when he compares the two investment vehicles he is not allowing for any financing whatsoever on the real estate side.
• He simply has so little experience outside Wall Street that he literally isn’t aware that 99% of real estate investors use leverage.

Neither explanation makes sense to me. He’s way too smart. Given the history of the two investment choices is there anyone out there who would make that claim so clearly?

His entire position relies on hindering the real estate investor to buying only property for Read more