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The Best Laid Plans Etc. Etc.Etc.

May 6, 2008 – 3:00 pm

Once upon a time the shrewd real estate investor had a very nice and neat investment strategy all mapped out. He would buy a run-down property at a distressed price, put a little sweat and money into it and turn around and sell for a profit 12 to 18 months later.

This was a great plan and could pay off tremendous dividends. Leverage allowed percentage returns into the 3 digit number ranges. Life was good.

Unfortunately things tend to change. Somewhere in the early 2000s prices started to escalate so much that our perfect investor with the perfect plan had trouble finding a property to buy that was priced in a distressed range whether it was distressed or not. So the investor started moving farther and farther from home base.

Suddenly Orange County investors started to find themselves in the middle of San Bernardino. Maybe even the High Desert or worse. Not only that but soon even these returns were in full retreat. Pretty soon the investment with all of it’s risks started paying off like a certificate of deposit. In other words, lousy.

Now the business plan needed to change. Now the cowboy investor had to start figuring that he would need to live with this investment for awhile. Maybe even 5 years. If that was the case, property management became more and more important. Operations were where the money was going to be made.

Admittedly this was pretty tame stuff. Returns could be better than certificate of deposits but they were not going to be like hitting the slot machine bonanaza either.

Today the investor may need to plan on a 6 or 7 year hold and he probably needs to pay attention to tenant retention and deferred maintenance. He needs to become a property manager or hire a good one to keep the cash flow coming and eventually to make that big pop on sale that came so frequently in the good old days. 

In today’s world blind luck has been replaced, once again with good management.  True, blind luck is much more fun to talk about at cocktail parties, but usually management triumphs.  This marketplace has driven us back to the mundane.

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