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The tale of 2 houses, aka: WHEN to cut bait.

February 15, 2016

This is the story of 2 types of investors and 2 types of investments. After reading, tell me if having a seasoned long term hands on skin-in-the-game professional in your back pocket is useful. Fair enough ?

2 Investor types:823hubbard-flint-mi-1986

  1. Knows when to cut bait
  2. Holds on until value is all gone, damaging credit.

2 Investment types:

  1. House still looks nice, area took a dump.
  2. Looked hideous, still does, but the area made it a good investment – in fact, there are brand new homes next door where there was abandoned inner city lots.3134birchrow-eastlansing-mi-1982-b
    • Point: Numbers will dictate logic & should tell you when to act.

I’ve had this one current client since opening my office over 3 decades ago.

Twice in that time I’ve issued ‘now is the time to buy’ alerts. I don’t do that lightly and I give reasons and research – AND put my money into said markets.

This one client did in fact pick up over a dozen investments in the 1st round. Then, as the area began to turn and he was invested ONLY in that local area and 1 property type, over a 5-10 yr period I begged him to bail before it was too late. Yep, didn’t do it.

Its not just a nationwide economy that affects these decisions, there are buy/sell opportunities all the time and many many local factors come in to play, more so local factors over statewide & nationwide in my opinion.

Welp, here’s some local info on the below ‘pretty house’ I owned in the same area.

Property Overviewfeedback_thinkAboutIt

  • Crime Rate: High
  • School Rating: D
  • Registered Offenders: 68 within 1 mile
  • Average Home Price: $24,000 within 1 mile (I sold for $15k more in 1988)
  • Foreclosures: 50 within 1 mile
  • Environmental Hazards: 24 within 1 mile

I’d bought, cleaned it up, made profits on renting for a couple years and in the 2nd year more so on selling it… waaaaay before the area took a dump. (my 1986 fence & rose bushes are still there).

ALL CURRENT PICTURES.

823hubbard-flint-mi-1986b


Below are current photos of THE most profitable house I ever had, AND the ugliest.

Made about 150% ROI every year  for 11 years with virtually no tenant turnover (1 for 7yrs, 1 for 4 yrs) + an additional 1000+% on my initial investment in the year of sale. Held: 11yrs, profit: $125-225/mo x 11yrs + $11000 at closing all for $1000k down payment and a few bucks for new kitchen cabinets and carpet.

  •  That tree in the front yard was 12 inches tall when I planted it in 1982.
  • Still has same kitchen I put in 30+ yrs ago after a gut and swap on my summer off from college at MSU. A bit shabbier now – well, a lot shabbier.

3134birchrow-eastlansing-mi-1982-b3134birchrow-eastlansing-mi-1982-e3134birchrow-eastlansing-mi-1982-g

Additional takeaways:

  • The immediate & local market dictates a ‘good’ investment and timing.
  • Investments are usually ‘cash now’ OR ‘appreciation for later’ RARELY BOTH.
    • The best ‘cash flow’ properties usually gain little/nothing/or are eventually abandon. Use these to live on.
    • The best ‘appreciation’ properties break even or have a small loss in ‘cash flow’ while held. Use these for retirement or other future savings.
    • ‘Appreciation’ properties are usually best at accumulating wealth.

If it was as easy as the TV shows, 94% of all investors would not loose money in real estate. If it was not a good investment, ‘the Donald’ would just be ‘Donald’, ‘Rich Dad/ Poor Dad’ would not be a book.



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