“You might as well realize that the time for opportunity is past. There's no longer any use trying to save for investing. The best you can hope for is to keep a steady job and stay off welfare. Nobody will ever again be able to build an estate big enough to produce an independent income.” These are the words of an economics professor from a prestigious California university. In a moment I'll tell you the rest of the story. But first, let me emphasize how important it is to choose very carefully who you listen to. You will always learn your most valuable lessons from positive thinkers.
Beware of “Negative Thinkers”
The world is full of “Chicken Littles” who are always telling anyone who will listen the sky will surely fall by a particular date. I've been around for more years than I care to brag about and I've yet to see even a small piece of blue sky lying on the ground. I've even quit wearing my hard hat, except for those rare occasions when I visit my tenant to deliver a rent increase notice. Certainly the California economy did slip down. There were many discouraging things to talk about. Housing prices dropped 30 percent, rents went down, military bases began closing and a whole train load of business folks simply packed up and left California looking for greener pastures. And that was the good news. The worst part was no one ever knew exactly when the down cycle would end. Still, looking for a steady job to keep off welfare seems like pretty harsh advice from an economics professor. Several years ago I decided that with all the properties I owned I might just have enough. I made a conscientious effort to reduce my holdings. I sold several proper ties and began collecting mortgage payments instead of rents. When the economy stalled out and some super bargains started showing up again, the temptation was more than I could bear-I got back in the hunt again. But, I am being extra picky. Many good deals are out there and it's easy to smell the profits. When the economy turns sour, it's definitely much easier to find cash flow properties almost everywhere.
Professor Prophet of Gloom
About the economics professor and his gloomy forecast, let me just say that he's the kind of an educator who can keep an entire graduating class working their buns off at Burger King. However, his advice has been proven wrong for a long time now. You see, he was offering his advice to the graduating class at Fresno State College in 1931. William Nickerson was in that class. Obviously he was not too impressed by the professor's advice. Bill recalls the speech in his best-selling book “How l Turned $1000 into Five-Million in Real Estate”, Simon and Schuster (Rev. Edition) 1980.
Change Creates Opportunity
Real estate cycles, both up and down, are nothing new to savvy investors. Real estate cycles create winners and losers alike. The secret to survival is learning how to stay in business. Have you ever watched surfers from the beach? If you have, you can't help but notice how they roll with the waves. Good surfers are not toppled over by even the biggest and most treacherous waves. Real estate investors can prepare themselves for treacherous times too. They do this with each new experience and by continuing their education. When you are knowledgeable about what you're doing and develop the confidence that comes with that knowledge, doom and gloom prophecies will have very little effect on your investment success. You'll be able to ride out the rough waters until they are calm again.
Full Speed Ahead – Damn the Torpedoes
In the 1970s I was fixing up four run down houses. Two of them were hooked to a collapsed septic tank and with every flush, bright yellow water came up around my roses. The tenants called the health department and it scared me half to death. I thought the my newly acquired rentals would be condemned. As it turned out I fixed the tank and my roses grew even taller. More important, my rents kept on coming in. The lesson I learned is that most problems are not nearly as bad as they often appear. One of the secrets to survival in this business is to properly assess a potential problem, get good help with the things you don't know about or understand. Above all, don't panic. Selling houses at a loss is much less desirable than creating notes to use up the equity. You can then trade the notes or use them for down payments on better properties. With this technique you can give your problem properties away without losing serious money. By the way, when the boom-times finally rolled around for Bill Nickerson after World War II, his old economics professor said: “It's too late for opportunity now. Success in business depends on having started in the depression.”