Focus On Your Real Estate Investments

I promised to tell you a little bit more about the Landlords of Johnson County, Kansas meeting I went to on Wednesday.  As mentioned previously there were three gentlemen there from the Bank of Blue Valley to talk about wealth planning, asset protection and the state of the current economy.  All the while sharing with us how their bank could benefit each and every person in the room.

In the interest of full disclosure I am a Bank of Blue Valley customer.  I think they do an excellent job.  On my personal account I get 5.38% interest on any monies in the account under $25,000 so long as I just go about my daily/monthly business.  (See Bank of Blue Valley for the details.)  I fully endorse at least that program.

Anyway, after the gentlemen each told of their positions or affiliations with the bank they had a Q&A session.  And I have to tell you that session didn’t go anything like I thought it would.

As I mentioned the other day there were probably about 75-80 people there.  So let’s say there were about 50 different investment property owners.  From what I could gather I think I could safely say those 50 Johnson County, Kansas real estate investors had to easily average 3 properties (or more) each.  So let’s say we had over 150 income properties represented. 

Continuing to set the stage I will tell you that 90% of the folks in that room had to be north of 55 years old.  I spoke with some couples that had owned Kansas City investment property for decades.  Just as an eduated guess I’d say that each property owner represented in that room easily had to have a net worth from real estate investing alone well above $500,000. 

And yet, most of the Q&A session was dominated by talk about stocks and the stock market.  What?  It was all I could do to sit there for 45-50 minutes and not stand up an yell

WHAT ABOUT REAL ESTATE INVESTING???!!!???!!!  YOU ALL MADE THE BULK OF YOUR MONEY THROUGH APPRECIATING ASSETS CALLED INCOME PROPERTY!  ASK QUESTIONS ABOUT THE DISPOSITION OR CONTINUATION OF YOUR REAL ESTATE INVESTMENTS!

But you’d have been proud of me.  I behaved myself and soaked up whatever information I could about the stock market and what others are doing.  And I did learn.  But I sat there fascinated by the complete lack of care people seemed to be treating their largest retirement assets.  

Now I don’t know the personal cases of any of the people in that room.  (Well, that’s not ture.  There is one perspective buyer in that room that I didn’t know was attending.)  But I would be absolutely flabbergasted if each of these people were on a pre-determined course to navigate the tax implications of their real estate holdings. 

I would advise anyone to simply not lose focus of their Kansas City real estate investments.  It’s great to have diversification.  I too have IRA & 401K plans in our family.  And yes, there have been times when dealing with the tenants was exhausing.  Yes, there have been times when I didn’t know if I’d have enough money to cover the vacancy.  And yes, there have been times when I thought I should quit all forms of real estate and become the drive-thru guy at the local burger joint.  But real estate has been/continues to be where my money has performed the best.  How about you?

 

9 Comments

Filed under Personal Real Estate Opinions

9 responses to “Focus On Your Real Estate Investments

  1. Another Investor

    I suspect these folks are very comfortable with their real estate investments and don’t have a lot of questions about them. With decades of experience, they know how to manage these properties and what they can expect in the way of net income from them. These folks are not highly leveraged and they are getting a good cash flow. For the most part, they don’t see a need to have a “plan,” except to keep the properties until they are too old to manage them, at which point they will sell or pass them on to the next generation.

    What worries these folks is the management of their paper assets. The value of these assets and the anticipated income from them is much more variable, especially in today’s treacherous market. I’m sure they are much more concerned about CD yields, stock values and dividends than they are about the bank’s mortgage products.

  2. You are probably correct. It’s amazing how different perspectives can come from different stages of life.

    Yet, do all of these people have proper succession plans in place that afford the greatest amount of shielding from taxes?

    At this stage in life, as you point out, they probably do.

  3. Brian

    I sat at a table with a couple of members of the board. This husband and wife team had been landlords for 12+ years and currently owned 14 properties (single family and duplexes.) They had an s-corp that they used as a property management company under which they managed only their own properties. Earlier in their landlording years, they had 1031 exchanged up to a small apartment complex. They said the cashflow was great, but they absolutely hated the extra time required to manage it. So after 4-5 years, they sold it and 1031 exchanged back to single family and duplexes. Their current strategy is to not purchase any more properties and instead concentrate on paying off their mortgages.

    I asked them a couple questions as to whether they used a self-directed IRA, or if they had a ROTH, etc. – they didn’t seem to understand what I was asking. This same couple sat rapt, listening to the discussion of various paper assets.

    I recognize that I am inexperienced, but when I meet people like this I grow more confident in what I’ve learned through all the reading and studying I’ve done. So many real estate investors I’ve met are quite successful at real estate and yet unsophisticated in their understanding of economics, finance, the power of leverage, and the concept of using “other people’s time”.

    I still think that first-hand experience is the most powerful teacher, but my confidence is growing!

    B.

  4. Thank you for the input. There are just so many different ways to call yourself a real estate investor and you can do it as simply or as complicated as you like.

    I’ve heard many an experienced investor tell the same story about trading up to apartments, disliking them and going back to single family homes and duplexes.

  5. Brian

    I think you’re right, there is quite a diversity of options for getting involved with real estate. That’s been rather a surprise for me.

    I hope it didn’t seem that I was being critical of the couple I described. Actually, I’m quite impressed with how they are managing their properties. I got them talking for quite a while about their experiences and it seemed to me that they had been quite intelligently trying different things and then settling on what they were most comfortable with.

    I’m actually quite intrigued by their current strategy to pay off their mortgages. If they achieve 14 paid off properties (15 if you count their personal residence) well, that’s quite a powerful situation.

    B.

  6. Another Investor

    Folks like the couple Brian spoke with didn’t need a fancy self-directed IRA structure to invest in real estate. What they did was saved their money, bought a house or duplex that cash-flowed, saved their increased income, bought another house or duplex that cash-flowed, and repeated the process 14 times.

    Brian sees that lots of successful investors are unsophisticated in their understanding of economics, finance, the power of leverage, and the concept of using other people’s time. I submit that sophistication in these areas as Brian defines it are not all that important to success in this business. Hard work, common sense, integrity in dealing with people, and a nose for cash-flow seem to be better predictors of success from what I have seen.

    While it would probably be wise for this couple to diversify to some extent, these folks will have the cash-flow from these properties as their retirement income. No complicated retirement calculators running Monte Carlo simulations to see if their money will last until they are 95 needed for them. They will just collect the rent, pay the operating expenses, and make needed capital improvements. Too much work for someone who is 95? Bring the kids in or hire professional management.

    I’m not (yet) north of 55, but in this environment, I am also focused on knocking out those mortgages. It’s the best way right now to increase cash-flow and reduce risk. If you are just starting out as an investor, buy cash-flow. By doing that, you have an excellent shot at achieving what this couple did.

  7. Another Investor,

    Again, so many ways to skin this cat. I know Brian and know his age and situation. And based on that I’d recommend he not worry so much about cash flow as capital growth.

    But I have other clients where my advice is counter to that.

    As you pointed out to me in your first comment, and you were right, different stages in life call for different stratagies.

    And you know what? Sophistication is not the key to any of this. Doing it with common sense and a little bit of research is. Yes, we could argue that you’d be worth another million if you’d done this or that. But only if you had done anything in the first place! 🙂

  8. Chris, I like to read about other groups and I have found that many of the landlord type groups are older people and they don’t like to share a whole heck of a lot. They like to sit back and watch, let the younger people stick themselves out there and talk at events like the landlord meeting or at a MAREI meeting, and the Younger folks, well many are still trying to figure everything out. So who does that leave – people talking about their services or stocks.. Love to see you at the next MAREI meeting – our speaker is going to share how to sell you houses quickly – and from what I can tell – a lot of that is in the buying it right and then in the rehabbing it right.

  9. Thanks for stopping by, Kim. You are always welcome here!

    And who knows when you’ll see me. With four kids school aged my evenings get pretty whack.

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