Get In The Game: Part 1

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This will be a multi-series report on why to get involved in residential real estate, even if it means making sacrifices initially to “Get in the Game.”

For those of you that have kids or relatives/friends that would like to own real estate but can’t figure out how to buy, this article is for you. “Get in the Game,” is in reference to buying and holding real estate. While I was in high school and college (back in the 1970’s, yes I am that old), I started to note how important owning real estate is in the building of wealth. It seemed that most wealthy people owed real estate and those that didn’t were falling behind in the wealth accumulation arena. So my wheels started turning on how to best go about owning real estate when I got out of school. I decided to become a real estate broker so I could best understand the real estate industry and learn what would be the best real estate to buy. Luckily, 4 months after becoming a real estate agent and working the business, I ran across a real estate investment firm in Huntington Beach that had purchased almost 1,000 SFR’s in Orange County for investment purposes. They had raised investor funds to buy and rent out these properties for 5 years or so, ride the appreciation wave that was going on in the 70’s (double digit for most of the 1970’s), and then cashing in the profits 5-7 years later. That was a very successful formula for this company and their investors back them. I asked to interview with them and luckily they were looking for someone to help buy properties for them and luckily they hired me for this position.

With inflation running double digit also in the 70’s, the Fed decided they were going to clamp down, and raise rates to get control of this double digit inflation.  Mortgage rates rose into the double digit range in the early 80’s, and real estate values dropped or plateaued then. The investment company decided to sell all those houses and I was the lucky person to be able to list and sell all those properties over the next 5 years, so I was listing and selling over 200 houses a year in my 20’s. Doing so, I got a tremendous education on residential real estate, as well as lived through two very different real estate cycles, the boom and the semi-bust cycles.  All through this, my conviction that real estate was a great way to build wealth, never changed.

Since the 70’s and 80’s, we have seen numerous boom, “pause,” and bust cycles, most notably the Financial Meltdown that started in 2006 and basically ended around 2010. Depending on where the properties were located, we saw property values peak in early 2006 and drop in value continuously for the next 4 years, sometimes as much a 60%. Orange County suburban properties lost about 20-30% of value at their low point, depending on their location and price range. The meltdown in real estate was caused by irresponsible investing and lending situations. I could write a book on the mistakes made, but let’s just assume horrible mistakes were made by many, and the house of cards that was created by these mistakes came tumbling down. If you want to read a great book on the market collapse back then, I highly recommend, “Reckless Endangerment,” by Gretchen Mortenson and Joshua Rosner It will take you through all the horrible decisions that were made by so many starting in the early 90’s. While this happened, it should be noted that the mistakes being made back then, have not been made this time around, and real estate is on a very solid footing.

In “Part 2” of this talk, I will talk about unconventional ways of getting involved with real estate ownership and the benefits derived by doing so.