Hi Friend
We have a really strong housing market happening in Edmond, Oklahoma these days. I’ve owned investment properties since 2001 and have never seen anything like this. The inventory available is nil. It is a “sellers market” simply because of supply and demand. In real estate the common knowledge is you make money when you buy it – meaning buying at the right price is everything.
However, with basic economics at play, if there is one house available for every ten people who want to buy, the value escalates significantly. Which seems to be what’s happening here. Again, I’ve never seen anything like it. I assume COVID has caused more people to remain in their homes and not move, while the desire to purchase homes has stayed consistent. (That’s total speculation)
We decided to sell in this environment. Buy low, sell high is the mantra in the stock market. (I have a tendency to do the opposite unfortunately, that’s how I ended up in real estate). Edmond property values are stable and fluctuate very little. The market generally grows 2-4% annually, basically keeping up with inflation.
We listed the first investment property I ever bought. It is a fun 3 bed, 2 bath, 1350 sq ft home. I love it! Great corner lot. Big fir tree in the back. Unique layout. In 2001 I paid $77,500 for it. (The cost of living in Oklahoma is kinda ridiculously awesome!). I listed it for $150,000 on Wednesday. By Thursday we had 3 showings set and two offers, sight-unseen. One was a low-ball cash offer and the other was $152k, pre-approved. We signed papers last night for the $152k deal.
Was it a good investment?
That’s the question I find myself asking. I imagine at first glance, you’re like “Ummm, Greg, you doubled your money, I’d say it turned out OK.” Isn’t that our tendency; take the top-line obvious and make assessments? When judging people, opportunities and scenarios – which we do daily – we are content to justify our conclusions on surface data.
However, it’s the details and periphery that tell the true story.
Would you be surprised to hear we had a $62,000 mortgage on it? After 20 years, I literally owed exactly what I did when I bought it. From wrapping it in a business loan with two other properties to refinancing and cashing out a couple of times, that house has been put to work for me. Despite resetting the mortgage multiple times, the annual depreciation trekked on, setting us up for a hefty capital gains tax. Not to mention the cost of remodeling it a few years ago.
After it’s all said and done, there will be some money in the bank. But was it a good investment?
When we observe others lives and decisions using top-line data only, we miss most of the picture, yet that doesn’t stop us from criticizing or being jealous. 🧐
If you crunched all the numbers, digging deep into the details, it turns out we made about 8% annually on our money. That’s in line with the stock market average. Not great, not bad.
The Periphery however generated extraordinary value!
EDUCATION. Growing up and even as a young adult, no one talked to me about the specifics of money and how to utilize it. (That’s why I don’t mind sharing the details of my business, because I wish someone would have with me). I self-educated about the real estate market, land-lording and mortgages. No, I didn’t learn to become a handy-man, but I did grow immensely in my understanding of utilizing cash and debt.
CATALYST. 20 months after learning everything I could from this first purchase, I bought my second property. Over the next 4 years, I bought 10 more properties. I never used my own personal cash after that first one. It was the impetus that launched our little real estate side hustle. Ironically it was also the least expensive house in Edmond I ever bought.
RELATIONSHIPS. I like people (but you know that). 😁 I met a bunch of them over the years. I currently have a few tenants who have lived in my properties for more than seven years. I know some great plumbers and HVAC people. I know the best title closing agent in the business. Same for insurance. Heck, I even know a decent banker or two. All because of this house. Having friendships and warm acquaintances matters to me.
Friend, I know you don’t care about the details of my property transactions. However, I care about challenging you to assess value from your decisions in a holistic manner. Don’t look simply at what worked and what didn’t. Dig deeper. Consider more broadly. Sometimes what appears to be a great investment on the surface, actually isn’t. And vice versa.
The Periphery is where it’s at!
Instigating Ideas
1. Generate a list of details and periphery about where you invest your time, money and energy.
2. What seems low value to others, but is meaningful to you? Tell someone why.
3. Besides financial, what ROI matters to you? Are you tracking it?
4. What are you learning?
Of all the properties I’ve owned, this one is the most valuable. From a surface evaluation (financial only), this property appears to be my least valuable. As we move into 2021, how and where we reflect will reveal the most useful information. The year 2020 seems like it lacks any value, yet if we consider…
The Details & PeripheryThe Details & PeripheryThe Details & Periphery
We might just extract some amazing worth from it. Your call.
I dare you to reassess your investments in a way that digs deeper, ponders wider and challenges what seems obvious. I would love to hear what you extract from the periphery that may supersede what is commonly considered central to determining value. Please Share.