Appreciation

Why swim upstream, if the current is moving everything in the opposite direction, right?”

Using economic cycles and bubbles, demographic shifts and a way of sizing up quality-of-life communities to live and invest in.

 

An excerpt from Book Two in “The Knowledge Path Series” dedicated to helping you make more money from a lifestyle businesses you’re truly passionate about.

Peak around the corner.

About the time of my own mid-life crisis I discovered the author Harry Dent.

Bubbles Bursting

He introduced me to economic cycles and bubbles, demographic shifts and a way of sizing up quality-of-life communities to live and invest in.

Any Poehler’s Leslie Character

Amy Poehler’s fictitious Pawnee, Indiana didn’t grow on me until season five when neighboring Eagleton, an ultra-affluent town, was written into the script.

In the sixth season the town of Eagleton, involved in a longstanding rivalry with Pawnee, goes into bankruptcy and is absorbed by Pawnee.

Fictitious Pawnee, Indiana

An effort spearheaded by Leslie after she sees no other way to save the town.

Having lived in a small Indiana college town on a bluff overlooking the Ohio River for four years and, then in another rural college town for my masters degree, I sought higher quality-of-life choices in a region that wasn’t so topographically flat.

But where?

  • And what if I discover after I move that I don’t like it?
  • What do I need to know ahead of time?
  • What if I chose a new Eagleton somewhere else and it files bankruptcy?
  • That can’t be good – except for Amy Poehler, right?
  • Nearly anybody can forecast the future.

How do you know which ones will come true?

I set up “The Journal of 2020 Foresight” after researching the top 100 trends and predictions from a variety of technical, economic, social and political sources.

And, knowledge labs to monitor key indicators in 5-year timelines –

  • 2003 to 2008,
  • 2009 to 2014 and
  • 2015 to 2020.

Why swim upstream, if the current is moving everything in the opposite direction, right?

The first knowledge lab, conducted during the 5-year timeline between 2003 to 2008.

Top Forces, Trends and Predictions

We began tracking some of Dent’s forecasts, especially the following four out of our original 100:

“4 – Basic innovation in communication technologies is allowing more people to relocate their homes to small towns and exurbs, and telecommute to business. 

3 – The baby boomers are moving into their vacation-home-buying years, which, in combination with the first trend, will stimulate demand for property in attractive resort towns. 

2 – The echo baby-boom generation is now moving into its household formation years, which will stimulate demand for apartments and rental property in the cities, and has already caused commercial property in these areas to appreciate, 

1 – There is a broad geographic migration towards areas of the country with warmer climates. You can expect the first three trends to be accentuated in the southwestern United States. “

Back to Harry Dent’s economic cycles and bubble forecasts.

He included a bubble wildcard as a fifth forecast.

The mother-of-all depressions, arriving sometime in the 2009 to 2015 time horizon.

Which presented itself as the mother-of-all Great Recessions.

More on that later.

The Warm Migration Trends
  • But, let’s say you decided to investigate opportunities triggered by the warm climate migration?
  • How do you explore the possibilities?
  • How do you go about it?

Dent borrowed from innovation, growth, and maturity product lifecycle curves to describe the potential for community growth and real estate appreciation.

S-Curve of Growth

You might say he spoke my language coming from my career in high technology.

  • Innovation – .1%, 1% to 9%.   
  • Growth – 10% breakout to 25% and from 50% to 75% and 
  • Maturity then to 90% – 99% percentiles.

What if the lifecycle model could be applied to resorts – estimating investment appreciation and community growth?

How does that work?

“The time it takes for an idea to move from a .1% idea to a 1% prototype, and finally to a 10% niche in the marketplace (Innovation), is roughly the same amount of time it takes for that niche to accelerate up the curvilinear curve of market acceptance through 50% to 90% (Growth).”

In the innovation stage, the risk is high and the potential reward could be astronomical.

If you found a small pristine mountain community at this stage and moved or invested in a vacation home on a lake, you may see your small down payment and mortgage pay off handsomely decades later.

Or not.

  • No guarantees.
  • Buy low, sell high.
  • As an investor, you’d want to find that goldilocks moment.

You wouldn’t want to invest too soon and wait forever, but definitely not too late when it is way too expensive to buy.

Pick sometime in the early growth stage but before the late growth phase turned into maturity.

When everyone else has heard of the premier destination.

As the mix of community residents begins to shift from High Country Eagles to Wireless Resorters.

You might find Pawnee attractive, but you probably missed the golden opportunity to move to Eagleton.

And by “season six” you’d be glad you did.

In priority order for finding the first three driving trends in one place – broad communications, Baby Boomer vacation-home buyers and echo-boom (Gen-Y, Millennials) entering the rental market, he lists:

  • Resort Towns
  • Small College and University Towns
  • Classic Towns
  • Revitalized Factory Towns
  • Exurbs
  • Suburban Villages
  • Emerging New Cities
  • Large-Growth Cities
  • Urban Villages

What if you’ve already built your mobile knowledge company, “Mobile KnowCo” and weren’t bound by your current fixed location?

How would you know if you found a town to fit your needs?

On your next vacation Harry Dent said to keep your eyes open for:

  • “A new look that includes intelligent town planning for increased human interaction; and abundant open space; 
  • flexibility in home design; 
  • planning for safety; shared facilities; and high-tech communications infrastructure.”

With those criteria in mind, we initiated coverage of “Resort Towns” in western United States like…

And, continued to aggregate lists of “Best Places” that fit Dent’s other eight categories of towns and cities.

Southwest Region from Wikitravel

From those thousands, we focused on and curated only those from six western and island regions:

  • Hawaii and other Tropical Regions;
  • Texas Regions;
  • Southwest Region (Arizona, Nevada, Utah and New Mexico);
  • Pacific Northwest Region (Washington and Oregon);
  • California Regions; and of course my favorite
  • Rocky Mountain Region (Colorado, Montana, Idaho and Wyoming).

But guess what?

All vacation destinations aren’t equally attractive and the reasons why aren’t obvious until you dig in and find out for yourself.

So, the only real question becomes, which one is right for you?

Especially if you longed for a fresh start.

Or were forced to take one.

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

Tomorrow

“It’s impossible to know in advance how many business ideas will spring up to disrupt or even replace existing industries.”

Nest Egg
Seared into their brains is a haunting future in which they outlive their next egg, not having saved enough money for retirement.

 

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part One in a 3-Part Series.

Please remember.  Check in with your financial planner as the following trends and opinions change and may have before you read this.

Aging Baby Boomers

Sometime in 2015 Millennials overtook Baby Boomers as the nation’s largest living generation.

Most everyone older and younger than the Baby Boomer generation grew tired of living in its shadow.

Thanks, Baby Boomers

And hearing about its impact on the economy, real estate, and well, you name it.

The oldest Millennial was born in 1981 and the youngest  in 1997

So doing the math for you, it works out like this.

Millennials (ages 18 to 34 in 2015)  numbered 75.3 million while the Boomers (ages 51 to 69 in 2015) dropped slightly from the decades long, popular estimate of 75 million to 74.9 million.

One estimate projected  75.4 million Boomers lived in 2014.

The bottom line?

Ain’t No Spring Chickens

They aren’t babies any longer.

Fewer and fewer of them will be around each advancing year.

In between, as you recall, lies the Gen X population (ages 35 to 50 in 2015.)

Sandwiched Gen-X

They get no respect.

  • And they’re already sick and tired reading or hearing about the older and younger generations.
  • But, they’ll have to get used to it since the Millennial population is projected to peak in 2036 at 81.1 million when the Millennials reach 56 years of age
  • By 2050 there will still be a projected 79.2 million Millennials.

Generation X became the “middle child” of generations.

Their ages spread out over 16 years compared to the 17 years of the Millennials

Knight Rider Kids

Though the oldest Gen Xer is now 50, they shouldn’t give up.

They can still become number two, if they try harder, or at least eat healthier and workout more often.

Actually, they can just wait until 2028 to outnumber the Boomers.

There will be 64.6 million Gen Xers and 63.7 million Boomers.

Gen X population will peak at 65.8 million in 2018.

Now back, to Baby Boomers.

They were all that.

The largest generation since the 1950s and 1960s having peaked at 78.8 million in 1999.

The Lone Ranger on Black and White TV

By mid-century, the Boomer population will dwindle to 16.6 million.

Talk about a boom, then a bust!

Let’s examine how the two huge generations will impact the rest of us.

Aging Boomers and coming-of-age Millennials will accelerate changes in the economy.

No question.

Housing Regrets

But, not everything is rosy or the same for both generations.

  • Both Baby Boomers and Millennials  will increasingly feel squeezed financially.
  • Roughly 150 million Americans feel squeezed, so they’re not alone.
  • But, chances are they both account for most of the 150 million citizens.

Just compare the median ages of both generations as of 2015.

Baby Boomers, age 60.

Millennials, age 25.

The 25-year-old Millennials, having lived through the Great Recession, find themselves either unable or unwilling to spend.

While the 60-year-old Boomers (parents or grandparents of Millennials) have been playing savings catch-up.

Seared into their brains is a haunting future in which they outlive their next egg, not having saved enough money for retirement.

Nest Egg

Which may last as long as 35 more years.

Or, as one financial expert tells them,

“You’re just going to have to live with lower rates of return.”

Steps:

(6) Anticipate changing circumstances and economic cycles.

(7) Persist and pivot to navigate external threats and opportunities.

(17) Sketch out your trajectory in 5-year time frames.  Will we fall into another recession?  Absolutely.  Will you be ready this time with future-proofed strategies?

(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.

Manage Operations and a Marketing Campaign

Now that you’ve purchased your property and continued to add properties as a business, you need to manage operations profitably.

 

Upgrade and Manage Costs
Keep your business records in a format according to the IRS Schedule E. You’ll want to be mindful of all the tax write-offs and considerations.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Five in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Part Two: Real Estate Investment Types

Part Three: Building Your Rental Business

Part Four: Find Experts for Sophisticated Financial Strategies

On a day-to-day basis in the beginning you’ll have to deal with all the headaches associated with rundown properties.

You’ll want to develop a trusted relationship with the contractors who will be upgrading units within the budget you set.

Like the stars of HDTV, you’ll need to trust you instincts when you first assess the future value of the property, despite the current poor appearances.

Costs for Upgrades

You’ll want to select and develop a trusted relationship with a real estate attorney as well.

What if you had overlooked rent control laws, for instance?

Obviously, those laws would have a severe impact the profitability of your rental property.

  • Can you raise rents on vacated properties?
  • Can you raise rents on the renovated apartments as they are finished?
  • Is there a right to new considerations when you want to raise rents?
  • Should you enter into limited partnerships to develop affordable rental housing while qualifying for tax credits?
Swim with the Sharks on Your Side

How do you pick an attorney who will work closely with you when you need him or her?

You may need to interview several before settling on the best fit for you.

Briefly you’ll want to compare their answers to the following questions.

  • Do you do any real estate deals?
  • Are you a specialist in any type
  • Residential
  • Commercial
  • Industrial
  • Raw Land
  • How many real estate closings did you do last year?
  • What are your normal fees for a person like myself who wants to buy income real estate?
  • Do you have any contacts in real estate who can help me build my holdings?
  • Will you protect me from making silly mistakes when I come across a lucrative property?

Now that you’ve purchased your property and continued to add properties as a business, you need to manage operations profitably.

Overlooked Rental Resource

First of all you’ll need to optimize rental prices and manage your vacancy rate.

  • Often local papers carry ads for free until a rental occurs.  
  • Don’t overlook religious congregations to get the word out.  
  • Government agencies frequently look for rental units — local offices of federal departments (HUD) and state agencies typically with “Housing” in their name.  

Of course, don’t overlook local rental agents to determine price and rental relationships at a reasonable cost.

And, on an ongoing basis you need to manage your expenses.

For example:

  • Use automatic controls for fuel and electric services
  • Contact local tax collector to aggressively reduce real estate taxes
  • Get bids for trash disposal
  • Use police and fire department personnel for maintenance at 33% rates (in their off hours)

Operating your rental investment as a business, you’ll want to brainstorm ideas to generate more cash.

Consider these to get you started.

  • Charge the maximum rent for each unit:  index to inflation
  • Keep upgrading your class of tenants
  • Market your property every day
  • Earn interest
  • Find licensed part-timers
Outsource or Manage Your Own Properties?

Hack away at fixed expenses

  • Refinance to lower monthly payments at a rate 2% lower than current
  • Transfer rent security deposits to a lender if it well help secure a loan
  • Refinance when you build 25% to 50% cash out
  • Set up automatic rent collection, have tenants pay utilities, find low maintenance and labor properties.

One last tip from the pros.

Keep your business records in a format according to the IRS Schedule E.

Organize Your Expenses

You’ll want to be mindful of all the tax write-offs and considerations.

What to do (and not to do) will impact the profitability of your business.

Consult a tax expert.

For how to account for issues like active participation, joint ownership, personal and rental use for vacation homes and more.

Don’t solely rely on this discussion.

Income in the form of rents and royalties

1. Sources

a. Rents

b. Laundry machines

c. Telephone(s)

d. Other services (cleaning apts.)

e. Interest on rent security deposits

2. Forms

a. 1099

b. K-1 Worksheets

Expenses

1. Advertising

2. Auto

a. Travel

3. Cleaning and maintenance

4. Commissions

5. Insurance

a. Fire, liability, structural

6. Legal and other professional fees

7. Management fees

a. Maintenance, cleaning, supervision

8. Mortgage interest qualified

a. Mortgage interest other

9. Other interest

10. Repairs

11. Supplies

12. Real Estate taxes

a. Other taxes

13. Utilities

a. Trash removal

b. Water

c. Electric

14. Other expenses

a.

b.

c.

d.

e. Indirect operating expense

f. Operating expense carryover

g. Vehicle rental

h. Amortization

15. Depreciation

a. Depletion

b. Depreciation carryover

16. Total expenses

17. Income or (loss)

18. Deductible rental real estate loss

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

Find Experts for Sophisticated Financial Strategies

Build a business platform that qualifies you to receive additional loans for your business. Over time you can establish a larger line of credit.

 

Flip For Profits, Or …
With the popularity of “Flip or Flop” on HDTV buying auctioned property and foreclosures to upgrade and place on  the market quickly is growing in interest.

 

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Four in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Part Two: Real Estate Investment Types

Part Three: Building Your Rental Business

One of the more popular topics in books, seminars and training sessions was called “Mortgaging Out.”

Gaggle of Real Estate Professionals
  • The way it works, they said, was you get a property that you actually own.
  • But, the beauty of this method is you are the one paid for taking it over.
  • Instead of the normal approach when you pay for the property.
  • Using this methods delays taxes on the cash you receive, until you decide to sell the property.
  • If then, they said.
Dot the i’s and cross the t’s

Obviously this is a more sophisticated financial scenario which requires guidance from a CPA and an attorney.

Swim with the Sharks on Your Side

You want to structure your investment for an annual cash flow.

  • When you do, you build a  business platform that qualifies you to receive additional loans for your business.
  • Over time you can establish a larger line of credit.
  • And, out of the cash flow you can repay small bills.
Cash is King

With reasonable caution you can tap unusual sources to generate even more cash flow according to the pros.

Consider All Your Options

Look into:

  • Lines of credit on credit cards
  • Second mortgage lenders eager to package all kinds of unusual loans
  • Investors wanting real estate in their portfolio
  • Hard-money lenders willing to charge high interest rate loans for short periods of time
  • Property improvement loans
  • Development cost loans
  • Seller refinancing

After you’ve mastered a couple of these deals it’s time to take your business seriously and look for multiple zero cash deals.

You’ll need to line up down payment loan sources ahead of time and develop a longer term business relationship with them.

At the core of the relationship you’ll want to evaluate and tap into their capacity to fund your business plan to take over, say two or more properties a month, on a consistent basis.

And they may turn out to be a tremendous local source for locating potential properties.

Other sources to monitor?

Internet Sites to Monitor
  • Newspapers
  • Local and national real estate magazines
  • Internet sites featuring properties for sale
  • Bank fliers offering Real Estate Owned (REO) properties
  • Sheriff and tax sale bulletins offering foreclosed properties
  • Get on real estate broker lists for free information and leaflets on available properties.
  • And join an “apartment owner association” and study their publications.

For each investment you want to locate owners who feel they want to get out of their property they’ve held for too many years.

Motivated?

They represent your best opportunity for successfully proposing a zero cash offer – a motivated seller.

They are more likely to entertain one or more of your proposals.

  • How would you like to sell at 10% more than your asking price?
  • How would you like to sell your property to me in just days?

Reassure them that you’re dedicated to upgrading and improving every piece of real estate you own.

Prepare for your negotiations by meeting the seller’s needs with a reasonable, but lowball offer.

  • Refer to what you discovered in your research.
  • They’ll recognize that you’ve done your homework which places your offer in a favorable light.
  • Highlight local and national market conditions, for instance.
  • Consider taking advantage of any time pressures your seller may have with an offer to close the deal quickly.
  • Make sure your offer reflects your business plan and takes into account possible negative scenarios.

“The What Ifs.”

Hidden Fees You Want to Avoid

What if you had purchased rental units just before a prolonged recession?

Check into local area recession data to determine the degree of overhang in previous recessions.

  • In some areas the upper end is 12%.
  • That is expect 88% of your units will be producing income.
  • Your area may vary.
  • Factor in a conservative estimate for a decrease in net cash flows by 12% to 15%.
  • Together with an increase, of say a 30%, in costs.
  • In your business plan calculations appreciation doesn’t play into your monthly operations, because it won’t be realized until at the time of the sale.

Will your offer still hold up?

In slow real estate times condo units being auctioned off still in new condition can present new opportunities

  • Typically, they are sold to highest bidder regardless of price
  • The seller offers investor financing of 90%
  • Auctions close deals quickly to move units
  • No repairs of any kind need be made — these are new units with all fixtures and equipment guaranteed
  • Once the deal closes it represents significant savings to you

With the popularity of “Flip or Flop” on HDTV buying auctioned property and foreclosures to upgrade and place on  the market quickly is growing in interest.

Flip For Profits, Or …
  • Lenders or government agencies offer foreclosures to investors.
  • The inventory of properties grows when people bought more expensive homes than they really could have afforded.
  • Or developers fail to analyze the market for their property correctly.
  • And investors didn’t factor the impact of tough times and tighter attitudes of bank lenders into their business plans.
Risk of Foreclosure

But you did.

Where else can you find deals?

  • Try special rehabilitation or historical building incentives.
  • When you weigh the pros and cons you see that tenants generate rental income already.
  • You’ll need to do your due diligence, but in most cases the units have good bones – sound construction.
  • They occupy good locations that appeal to low- and middle-income renters.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

Building Your Rental Business

You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.

Rental Properties
Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Three in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Part Two: Real Estate Investment Types

Is there a simple way to evaluate which properties merit your investment?

Look at absorption vs. overhang.

Absorption describes the demand for units — not enough units in a specific location to satisfy demand usually measured by vacancy rates — low is better.

Overhang refers to renter turnover.

Multi-unit Apartments

More renters leave than the number of potential tenants signing up.

Simply, supply outstrips demand.

Several factors favor higher absorption demand.

Location, location, location, right?

Yes, renters prefer closeness to both transportation and to shopping areas.

How about the amount of income you can generate?

You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.

A major factor is the condition of your property.

Condition of your Property
  • Everything from how old is your wiring — will it need to be upgraded to increase your units attractiveness.
  • Same for plumbing.
  • Size of units — bigger is better in certain areas — so spaciousness and cleanliness command higher rents.
Costs for Upgrades

And, finally consider the value trends in the property’s neighborhood.

From your potential list of properties fitting your investment criteria you’ll want to check off those that fit the lowest price you can negotiate.

  • To do so you need to know your cost and income per square foot for the property type and community.
  • The experts recommend opening your negotiations by asking for 10% lower than the property’s asking price.
  • They also suggest agreeing to the longest mortgage terms to lower monthly payments.
  • And finding the lowest interest rates you can.
Comparing Potential Profit and Loss

In the right market, you might even consider taking a balloon payment when you can after three to 10 years.

Remember, if the real estate market tanks, you’ll need to come up with the payment if you can’t renegotiate it.

Do the properties fit your criteria?

Shoot for a 30% positive cash flow so you can pay your monthly mortgage and bank the profit.  

Negotiate a lower gross multiplier figure.  

Typically in the middle of the last decade it ranged between 3x to 12x annual rental price. 

In other words if the property’s annual rental income totals $25,000 at 3x the purchase price equals $75,000.  

The bonus, of course, is you can borrow against 100% to close the sale. 

Likewise a gross multiplier at 12 times yields a $300,000 price.

Then, as the new owner going forward you want to reach the point where your property is self-supporting and pays for itself.

Finding Ways to Make Your Business Self-Sustaining

You’ll want to reduce costs at the front end and during operations while you begin to raise rents.

Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

Real Estate Investment Types

Once you’ve got residential properties under your belt, the next easiest is investing in and managing industrial and commercial properties.

Renting Your Residential Properties
If the path of development stalls or turns in another direction, your bet on higher appreciation bailing out your investment turns out to be a sucker bet.

 

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part Two in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part One: FOMO

Real estate experts recommended multifamily properties as a good first step while skipping raw land that only produces expenses not income until you sell.

By comparison multifamily rental units provided steady income.

Multi-Family Rentals
  • Normally rent checks came monthly by mail while the value of the unit appreciates.
  • Of course, now in a frictionless economy, they can be directly deposit funds into your account without delay.
  • Another example of, with the right insight, a fully functioning Knowledge ATM.
  • On the downside you’ll need to deal with problem tenants from time to time.
  • Depending on the age and condition of the property you’ll begin to incur high repair costs that will eat into your profits at some point.

Once you’ve got residential properties under your belt, the next easiest is investing in and managing industrial and commercial properties.

Renting Commercial Properties
  • The experts caution about jumping into large properties, advising beginners to start small.
  • Incomes tend to rise and fall with the ups and downs of the economic cycles.
  • When conditions favor your property and your vacancies are low you can generate large incomes with a full building.

What about shopping centers and strip malls?

Strip Malls and Shopping Centers
  • Like commercial properties in good times which generate high incomes with centers and malls you can share in the gross receipts of your tenants.
  • And, with the right location your land can appreciate quickly.
  • But, there’s a downside.
  • Buying can be complex and difficult to negotiate due to the property’s high cost.
  • So, zero cash deals can be extraordinarily hard to work out.
  • And, remember sophisticated tenants want to negotiate their best deals which will eat into your profits.

What’s the attraction to raw land?

Low Barrier for Entry with Raw Land
  • In great areas it can appreciate very quickly as development approaches your location.
  • And, before the path of development becomes common knowledge you may be able to tie up property for as little as $ 1.00 down.
  • However, without the strong appreciation probability, raw land requires improvements like streets, sewers, electricity and other utilities — all costs.
  • So it rarely gives you a positive cash flow, especially after the tax burden is factored in.
  • If the path of development stalls or turns in another direction, your bet on higher appreciation bailing out your investment turns out to be a sucker bet.
Initial High Cost of Entry in Self Storage

Likewise, building self-storage warehouses incurs out of pocket expenses.

But once they are built, or if you buy existing units, you can enjoy positive cash flow with little overhead and low operating expenses if you keep your vacancy rate low.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

FOMO

Just before the Great Recession managed to dash homeowner dreams and investor real estate businesses, most of the different methods promoted common profit goals.

Which Type of Real Estate Investment is Right For You?
And, as a business model you could evaluate different types of real estate investments

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Part One in a 5-Part Series: Is An Investment in Real Estate Right for You?

Part Two: Real Estate Investment Types

Part Three: Building Your Rental Real Estate Business

Housing markets.

Real Estate opportunities.

What Do You Really Need to Know?

Are we experiencing the fear of missing out (FOMO) again?

Are we experiencing the past all over again?

But with a new generation?

Remember the absolute real estate feeding frenzy before the melt down?

  • Rich Dads,
  • Trump University,
  • Wealth Management Expos.
Real Money Was In The Training Programs

We sat in the audiences and listened to their high pressure pitches to buy their training programs in downtown LA.

We encountered no shortage of

  • books,
  • tapes,
  • seminars pitching ways of making money with
  • OPM – Other People’s Money.

Timing?

The worst case materialized when thousands jumped in and over-extended themselves just as the bubble burst.

They got caught holding the bag.

Risk of Foreclosure

In a game of real estate musical chairs, the economy pulled the chair out from under them.

  • What were they thinking?
  • Obviously, not expecting a reverse cycle?
  • But, looking back now and projecting ahead, do the methods work?
  • Can you still find opportunities with the degree of risk you can afford?
  • What should you know?

So far we focused on moving to resort communities that bring out the best in you.

  • Should you just buy a second-home, but keep your primary residence and rent out your vacation home?
  • If you do move, are there any other ways to make money in real estate that make sense for you?

Just before the Great Recession managed to dash homeowner dreams and investor real estate businesses, most of the different methods promoted common profit goals.

Each recommended real estate deals that only …

  • generated a positive monthly income,
  • appreciation growth, with
  • zero or near zero down payments
  • securing a mortgage, and
  • cash in your hand on each deal.

Your job, then is to research and then visit communities that fit your criteria with fewer tradeoffs.

And, as a business model you could evaluate different types of real estate investments —

  • multifamily residential properties,
  • industrial and commercial units,
  • shopping centers and strip malls,
  • raw land or self-storage warehouses.

Steps:

(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.

(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?

 

Wireless Resorter or High Country Eagle?

The impact on rural and remote quality-of-life counties will be unevenly felt across the landscape posing different demands for local goods and services.

Enjoying Pristine Moments
The Southwest, Rocky Mountains, and Northwest (in that order) will have the highest population growth and the greatest potential real estate appreciation in the nation.

Final installment in a 4-Part Series evaluating real estate and consumer predictions as generations transition throughout successive life stages.

Part Three :  Who’s Free to Move About the Country?

Part Two: Demographic Lifestyles and Buying Power

Part One: Determinism

Here’s the case for leaving California, which many people already know.

California’s high cost of living and strict environmental standards discourage many businesses from locating there.

As a result, all of the states around California are experiencing explosive population growth.

Here’s the case for staying put in California for the Golden State’s residents.

Love Affair with California

Great weather, abundant recreational opportunities, and an innovative social and technological environment all contribute to this fact.

But, where will you find growth and equity appreciation?

The Southwest, Rocky Mountains, and Northwest (in that order) will have the highest population growth and the greatest potential real estate appreciation in the nation.

Southwest Region from Wikitravel

Like most North Americans, according to Dent, I prefer to live as near as I can to the coast.

Because of the vast natural beauty

Businesses have also benefited from access to shipping ports, he says.

This, in turn, means that coastal areas were the first to become congested and expensive.  

Santa Barbara, Los Angeles and San Diego are close to merging into one metropolis, as have Monterey, Santa Cruz, San Francisco and Santa Rosa in northern California. 

Metropolitan Encroachment

Fortunately, the Central Coastal area between Santa Barbara County and Carmel in Monterey County doesn’t lend itself to mega development.

Big Sur in California’s Central Coast

In fact, those  coastal areas that still had underdeveloped land suitable for building have grown the fastest. 

These areas include Vancouver, Seattle and Portland in the Northwest. 

Pacific Northwest from Wikitravel

But areas in the Northwest – Vancouver and Seattle- are quickly approaching population saturation.

They are becoming increasingly expensive, which leaves only Portland to develop strongly in the coming decade.

As a result of the congestion and expense along the coastal areas, it is inevitable that people and businesses will begin looking at inland areas to find attractive towns and cities.

So it’s not just out-of-state migration from California contributing to Dent’s trend.

Rocky Mountain Region from Wikitravel

That’s why we’re seeing such remarkable growth in the southerly portions of the Rocky Mountain area and in desert states including Arizona, NewMexico, Utah and Nevada. 

As the Great Recession’s lingering effects dramatically decrease non employment-driven decisions to relocate can significantly play a greater role.

What’s the impact driven by a segment of our population not driven by employment-related criteria?

Employment drivers for 60-64 year olds is 25% as strong as that for 30-34 year olds.

Concentrations of 55-75 year olds in rural and small-town population of 55-75 year olds will increase two-thirds from 8.6 Million to 14.2 million between 2000 and 2020.

Back Road Magic

The impact on rural and remote quality-of-life counties will be unevenly felt across the landscape posing different demands for local goods and services.

Empty nesters will no longer need the living space they once enjoyed.

Especially after the last of the live-at-home 20-29 year old Millennials strike out on their own.

Some empty lifers with champagne tastes on “Budweiser” budgets are attracted to High Country Eagle communities filled mostly with

  • Rustic Eagles,
  • Rural Cowboys,
  • Small Town Borders, and
  • Satellite City-zens.

And, to those Wireless Resorters with resort amenities for their second homes:

  • Distant Exurbans,
  • Resort Suburbans,
  • Maturing Resorts, and
  • Premier Resorts.
Festive Resort Living

If you couple changing housing needs with the early retirement options available to the more affluent empty nesters, then you have newer early retirement options.

What both categories of empty nesters, the 45+ and 55+ age groups, have in common is that stage of life where they are no longer raising their children in their homes.

Steps:

(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Who’s Free to Move About the Country?

California doesn’t have a corner on the market for individuals and businesses seeking pristine natural quality-of-life communities with an open and innovative social environment.

Psychologists have found that midlife is typically a time when many of us take stock of our values and goals. 

Part Three in a 4-part Series evaluating real estate and consumer predictions as generations transition throughout successive life stages.

Part Two: Demographic Lifestyles and Buying Power

Part One: Determinism

What about those aging Baby Boomers?

If they follow the broad trend lines, they will retire in place.

Importance of Grandchildren

The community they now call home after their last corporate transfer.

Where their children and grandchildren call home.

Dent recommends checking out the best suburban and exurban communities on the edge of attractive cities in addition to the more compelling resorts and university towns.

If we look at the trends in which cities and geographical areas have attracted the most retirees in the last decade we can get a better clue as to where the growth will continue to accelerate as the pre-retirement and retirement age groups grow in the coming decade. 

Mammoth Mountain Getaways

For this next part, remember what Mammoth realtor Paul Oster wrote – Dent’s track record makes him a better demographer than an economist.

Remember that on a 63-year lag for average retirement, baby boomers will be retiring in rising rates from 2000 – 2026.  

After this boom ends, deflation is almost certain to ensue for at least a decade and possibly into the early 2020’s. 

Resort Retirement Benefits

Dent said that means the cost of living, the price of real estate, and the interest rates should drop substantially.

This deflationary downturn will offer direct benefits to real estate owners and buyers. 

Has the time come and gone – when Dent’s trends wither on the vine?

We only have to review Lake Tahoe and Mammoth Lake’s real estate markets to call into question the accuracy of Dent’s first trend.

Lake Tahoe Traditions

The first trend is a broad migration pattern towards exurbs and small towns, many of which will continue to hold most of their value through the downturn.

This third wave of migration – an exodus from the suburbs – will accelerate through the first half of the 21st century, continue long after this Deflationary Shakeout ends.

The second trend will be a strong and consistent rise in retirement home purchases.

Mountain Retirement and Second Homes

Baby boomers will drive the market for this kind of property from 2002 into around 2030. 

A third long-term real estate trend to take advantage of after late 2008 is the rising demand for rental property in urban and suburban areas.

Why?

Apartments will be in relatively strong demand through about 2017 due partly to the aging of the echo baby boom generation. 

Seems reasonable, and while we may have dodged the “Mother of All Depressions” he predicted instead with the Great Recession, Dent’s view on demand may be currently playing out.

Demand will be further strengthened by the effect of the depression era on individuals who are of an age to shop for starter homes, but who must delay this purchase until the economy improves.

Stuff happens in our lives.

Second Half Dream Homes

Recall two midlifers, Johnny from Boston and David from Canada — two refugees from the cold weather who moved to Cabo San Lucas to start over.

Dent writes

Psychologists have found that midlife is typically a time when many of us take stock of our values and goals. 

He ticks off several reasons.

We attain a certain level of affluence through the combination of high earnings and a sudden drop in necessary family expenses as children leave the nest.

What’s Important in Our Lives?

We confront our mortality, either by taking care of ill or elderly parents or by seeing the inevitable aging in ourselves. 

For baby boomers and older Gen X-ers each reason can usher in a more positive ending.

Above all, retirement looms on the horizon as an expanse of freedom that many of us, working 8-to-5 jobs, have not known before. 

All of these reasons compel us to pause, reflect, and consider how we are going to live the rest of our lives. 

California doesn’t have a corner on the market for individuals and businesses seeking pristine natural quality-of-life communities with an open and innovative social environment.

While Dent believed California would grow, other communities in the West were forecasted to grow much faster.

And without paying a high price tag for a similar lifestyle.

Dent suggested these additions to your Western bucket list.

From Hollywood to Silicon Valley, along the coasts into Portland, Seattle and Vancouver, and inland to  Utah, Colorado, Arizona, New Mexico and Texas, we see the most innovative cities in America spawning most of the growth companies.

What do they have in common?

These businesses, primarily in the fields of high technology and entertainment, are the backbone of the new information economy.

If you’ve ever lived or traveled in the West, you know there is a clear difference in culture between the western states, the east coast, and the central areas of North America.

Steps:

(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.

Demographic Lifestyles and Buying Power

As time marches on they’ll move the Baby Boomers aside as target real estate buyers of resort property …

Resort Vacation Home
Will the majority of retirement age baby boomers move to remote resort locations like Mammoth Lakes, Dillon, Colorado or in recreational areas like Lake Tahoe?

Part Two in a 4-part Series evaluating real estate and consumer predictions as generations transition throughout successive life stages.

Part One: Determinism

For each of the following predictions more current forces may delay and extend the age ranges for the Millennial generation.

But first, what about the Gen X generation?

They “occupy” several life stage demographic profiles.

Recall that the Gen X cohort accounts for roughly 51 million who were born between 1964 and 1980.

By 2015 they range from between age 35 and 50 years old which stretches across

Active Midlife Couples
  • 30-44 year old Singles and Midlife
  • 35-54 year old Families
  • 45+ year old Families and Empty Nest Couples.

They have or are just now reaching their “peak spending years,” between the ages 46 and 53. Dent correlates demographic age to real estate segments.

Spending on trade-up homes accelerates from age 35 and reaches a peak by around age 44.

As time marches on they’ll move the Baby Boomers aside as target real estate buyers of resort property …

Sales of vacation property begins to accelerate from age 46 and peaks around age 52 to 55.

The Baby Boom generation conformed except for those members caught by surprise during the Great Recession.

Investment in retirement property begins to accelerate from the late 50s and peaks in the mid-60s.

In 2014 the huge generation numbered 75.4 million.

Born after World War II between 1946 to 1964, their median age 60 years old anchored their range between 51 and 69 years old.

Having moved through all of the other life stage and age segments they now occupy

Retiring Baby Boomer Couples
  • 55+ Baby Boomer Couples,
  • Empty Nests, and
  • 65+ Couples and Seniors

In addition, Dent describes how broad geographical migration patterns significantly influence long-term real estate trends.

Certain areas of the country clearly and consistently have experienced faster growth than others. 

For example in 2002 …

The Northeast and the Upper Midwest Plains states have generally been losing population; the Midwest has seen flat or modest growth; and the Southeast, Southwest and Northwest have all been growing substantially.

Will the majority of retirement age baby boomers move to remote resort locations like Mammoth Lakes, Dillon, Colorado or in recreational areas like Lake Tahoe?

No.

Part Three: Who’s Free to Move About the Country?

Steps:

(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.

An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.