PROOF: Buy-and-Hold DOESN'T WORK | Episode 119

It’s time for some more BRUTAL HONESTY.  You think that “buy and hold” real estate is a good bet… that home values usually grow over time.  Well, my friends:  Somebody – EVERYBODY – lied to you.  U.S. housing is, generally speaking, a LOSING PROPOSITION as a buy-and-hold investment, and I’ve got the data to prove it.  I’m Bryan Ellis.  Get ready for the shocking truth RIGHT NOW in Episode #119.

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Hello, hello, hello SDI Nation!  What a great day to be alive, and thank you for spending the next 7 minutes with me again today.

As my thanks for your attention, how about I just go ahead and BLOW YOUR MIND?

Here goes:  There’s a long-standing believe that the odds are on your side if you buy real estate and just hold it.  Alas, my friends:  It’s just not true… and I’ve got the HARD EVIDENCE to prove it.

Before I do that, let’s establish some context.  In the last episode of this show, we began to analyze the notion of buying rental properties in the context of the S3 Investing Criteria of SIMPLE, SAFE and STRONG.  I gave you some pointers on determining whether rental property ownership is, as a concept and in terms of implementation, sufficiently SIMPLE to be worthy of your portfolio dollars.  Remember, complexity hides risk, and so SIMPLICITY is a key component for every wise investment.

One other thing we discussed on the last episode, which really comes into sharper focus today, is the reality that not all rental properties are the same.  If someone is trying to sell you a rental property, you should ALWAYS seek out additional options for comparison – maybe even in entirely different markets and with entirely different providers – because rental property is NOT a commodity.  One deal is NOT the same as the next.  Folks, it’s very realistic that two separate deals could look really good to you, but one will lead to profit and the other will lead to financial ruin.  How do you know the difference?  Well, start with what you learned on yesterday’s episode, and then pay attention to this, too:

SAFETY is the 2nd leg of the Simple-Safe-Strong trifecta of investment excellence, and nothing is more fundamental to the question of safety than having a strong reason to believe that your property will increase in value over time.  In fact, equity appreciation is frequently the very biggest part of the payoff for owning rental property at all.

That’s why it’s so easy for slick salespeople to mislead you about the likelihood that your property will be worth more in the future.  They’re relying on the same thing that everybody else relies upon:  The assumed knowledge that housing values go up over time.

My friends, it just isn’t true… as much as I wish it was.  And this isn’t my opinion.  Here’s the data:

For a recent 45-year-period, the average home price in America – whether new or existing – DID increase at a rate of 5.4% annually.  That’s the statistic that makes it so easy to claim that home prices increase.

But that’s incredibly deceptive, because in that time period, the SIZE of the average house went from under 1,000 square feet to over 2,300 square feet, so it stands to reason that average home prices went up during that time as well, and they did.

So average home price is the wrong metric.  What’s a better metric?  Average price per square foot.  That’s where the real story is told.

And when we look at THAT metric, the National Association of Realtors tells us that existing homes prices increased by 3.7% per year.

So what’s the problem?

Well, PRICES are increasing, but VALUE is actually DECLINING.  That’s because those figures do not factor in the most silent killer of wealth:  INFLATION.

I’m not going to bore you to tears with inflation rates or statistics, so here’s what I’ll tell you to make it clear:  In 1992, an average square foot of housing was worth 76 loaves of bread.  By 2010 – 18 years later – that same square foot could only buy about 60 loaves of bread.

So… while your net worth would have increased rather nicely in that time frame, your REAL WEALTH – your BUYING POWER – would have decreased… a LOT.

What’s the lesson here?  Is it that you shouldn’t invest in residential rental property?

Well, YES, that’s the lesson… if you’re going to do it indiscriminately.  You can’t rely on platitudes like “real estate has made more millionaires than any other investment” or that “real estate is the most historically proven asset class”.  Those things just aren’t true.

But if you can internalize the fact that real estate isn’t an automatic winner – that some rental property is inherently FOOLISH and some is inherently WISE – you STILL can do well, and do well safely.  There are 2 reasons this is true:

First:  Real estate is a distinctly local issue.   National statistics are great for understanding broad trends, and for counteracting fundamentally false beliefs like those I mentioned before, but the truth is that certain specific regions of the country are more inclined than others to show increases in value, and those places are where you should focus your investment dollars.

Second:  You can still do well in real estate because all of those statistics make one big assumption:  They assume that you’re paying regular retail prices for your properties.  And if you’re thinking of buying your real estate from a turnkey real estate company, you probably are paying full retail… and possibly a bit more.

But did you know that the situation changes rather dramatically if you are able to get as little as a 10% discount on the price you pay versus the retail value of the property?  In other words, the dynamics change greatly if you pay $90,000 for that $100,000 house.  By making that adjustment – by insisting that you never pay more than 90% of retail value, and ideally less – for your rental properties, suddenly your real estate buys MORE BREAD at the end of the investment than at the beginning.  You actually make money rather than losing it.

Buying real estate below market value is what enables you to be Profitable From Day 1.  That, my friends, should ALWAYS be your operational standard for investing.

Now, there are a few other risk points that affect the safety of investing in rental property, and I’ll discuss them with you in the next episode.

So then the question becomes:  How do you find properties in strong markets that you can purchase for at least 10% below market value?  That’s where you have to start.  If you can’t get an attractive price in a desirable market, nothing else matters.

This isn’t a minor thing, folks.  It’s not easy to find real estate that you can buy below its real value.

But, my friends, I’m happy to help you.  Right now, we at Self Directed Investor Network have identified 3 HIGHLY FAVORABLE real estate markets across America that have THE RIGHT STUFF… strong rental rates, solid expectancy for appreciation… and most importantly, because of our influence in the market, the ability to purchase property SOLIDLY below retail value.

If you’d like to know what those markets are… and how YOU can own property well below it’s actual value – so that you can be PROFITABLE FROM DAY 1 – then please plan to join me for my upcoming webinar called:  “Profitable From Day 1:  3 Ideal Markets For Building Wealth”.  Sponsored by Self-Directed Investor Radio, this webinar will feature YOURS TRULY as I help you to understand exactly WHAT characteristics make for a great rental investment, what are the hidden red flags, and – most importantly – an introduction to exactly the right people who can help you to grow your cash flow and your wealth by investing in rentals the right way, the SDI way – Simple, Safe and Strong.

To get your invitation for this webinar, just text the word INVITATION to 33444 and I’ll send you one right away.  Again, text the word INVITATION to 33444.  But I do recommend you do this right away… I’m telling you about it first here on SDI Radio so you’ll get first shot, but when I announce it to my email list in a couple of days, it will fill up instantly, so please do request your invitation now by texting the word INVITATION to 33444.  Or if texting doesn’t work for you, just go to SDIRadio.com/invitation.

My friends:  Invest wisely today – the SDI way – and live well forever!

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