What About Investing In Real Estate? Part 2

What About Investing In Real Estate? An investor and real estate developer that I was once on staff for, Bill Schourup,  had an important investing principle. It was based on his belief that real estate went in cycles. One can’t predict when the cycle will take place, but one can predict that there will be ups and downs in values. This was advice from over 30 years ago, when I was just a young pup. Mind you, he was an investor as well as a developer. Pretty much all of his investments were in real estate. He owned large portions of land, a shopping center, motels, pads to lease to fast food restaurants, apartments, and office buildings.

That advice was to either own your real estate free and clear or have it in debt as close to 100% as possible. The reasoning was simple. In a down market when you own it without debt your only risk is the cost to hold it. For example in land there may be taxes. Rental properties were a favorite as your risk on free and clear investments you may be subject to reducing rents.

When you have it close to 100% mortgaged the banks are more likely to work with you rather than foreclose and take the problem on their own or suffer a loss greater than working with you. An example I witnessed with a condo developer client was in the most recent down market or should I say crash. Rather than foreclosing on a building just completed construction before the crash the bank gave a client of mine in the Seattle area the right to rent the units out until the market turned back up. These were very high end condos. The client used the rent to maintain the servicing of the mortgage. Had their been serious equity that wasn’t a probable outcome.

Bill’s theory of there will always be ups and downs in the real estate market is in fact more than a theory. The concept that we never know when the down will happen is real. I was in a conference in New York City when a Harvard professor asserted that we were about to witness a crash. It was a real estate conference and he was about booed out of the building. None of the attendees bought into his premise. All of us soon witnessed the reality of his claim. If only.

What About Investing In Real Estate?

By the way, have any of you had your stock portfolio ruined in a heart beat? I have. We have. Kathleen was once a proud hold and never sell of major telecom stocks. They took a crash that have only partially recovered. One stock dropped by over 90% in value. She still holds it and yes, it has come back by about three times. If it were at $90.00 and dropped by 90% it would have gone down to just over $8.00 a share. See it triple again and she has it up to $24.0o. Not so good, right?

I sold a condo to an individual who called and wanted something better than what she was getting in the bank, which of course is about 0. She is getting a 5% return after paying the HOA. She bought it without a mortgage. This may not be the ultimate investment but it sure not risky to hold and it sure beats the bank.

What About Investing In Real Estate?

This article is a part of a series addressing What About Investing In Real Estate? I will share a variety of investing options which may or may not make sense for you.

Posted on May 3, 2018 at 6:14 pm
Larry Cragun | Category: Investing In Real Estate, Larry K Cragun | Tagged

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