By Tom Olson
Earlier this year, a colleague of mine asked me something he believed would be a difficult question: “What will you do if real estate investing stops being profitable?”
I believe he asked the question to spark discussion and debate about the economy and the housing market, but my answer left little room for argument. I said simply, “I’ll stop doing it.” Of course, if you happen to be the rare self-directed investor who happens to not have any real estate or real estate-related assets in your portfolio, then that might not seem like a very controversial answer. On the other hand, if you, like me, have been investing in real estate for decades both in and outside of your self-directed retirement accounts and (in my case) running a thriving group of real estate-related businesses, then the decision to “just stop” is not one that is easily made.
However, the decision to make a “hard right” in your investing is a decision that you should always be prepared, in advance, to make. Truly prepared, sophisticated self-directed investors know when it is “time to say when,” as the saying goes. The best way to know this is to have a deep, real-time familiarity with the numbers and metrics in your business and portfolio, including understanding where the local, state, regional, and national markets and economies are heading at every given time.
When you have this familiarity, then you can be prepared to change gears when the time comes rather than taking the path that is most familiar, least resistant, and, in times of economic volatility, likely to be extremely perilous. If you do not have this familiarity, you will likely continue to invest in the ways that have “always worked” even when the market changes into something you may never have seen before.
If you’re not sure to what I am referring, I will be a bit more blunt: At present, we are dealing with the potential for truly revolutionary (and I don’t use that description in a positive sense) change in the very tenets of our economy and the real estate industry. Leading politicians and policy-makers are courting a young population of voters who believe in and vocally support laws that not only vilify real estate investors specifically and all investors more generally but also penalize those investors for doing things revitalizing neighborhoods, buying zombie foreclosures, and providing affordable housing. This population believes these laws are the solution to a variety of woes ranging from poverty to low literacy rates. Real examples of popular proposals include:
- Taxing flipped properties (and all homes sold by non-occupant owners) an extra 25 percent
- Enacting a 2 percent “empty-home tax” based on the property values of vacant homes
- Capping rents at a national level so that no landlord may raise rents by more than 3 percent
- Implementing a national “just-cause” requirement for evictions that would essentially eliminate eviction as an option for most landlords
Some of these proposals will likely sound familiar to you because they echoed from the debate stages during the primaries for the 2020 presidential election. Make no mistake: These concepts are not just the personal property of one man. They are the trending ideas of an influential voting demographic that may, with time, permanently alter our economic landscape. If that change comes, investors in real estate and other assets must be ready to reassess, reevaluate, and re-chart the course toward a secure financial future because the markets as we have known them will be fundamentally changed and possibly damaged beyond repair.
If that sounds bleak, well, that’s because it is. However, my point is not to depress you with a lot of doom and gloom about your investments in the future. Instead, my goal is to encourage you to face this potential issue – and every potential market shift, correction or otherwise – head on. When we watch our local and national markets carefully, identify trends and indicators that will affect not only our current assets but also our plans for future holdings, and are willing to consider the possibility that those plans will require revision, only then are we truly prepared for any market outcome. Only then are we truly sophisticated self-directed investors.
Tom Olson is the founder and president of The Olson Group and the Good Success Mastermind. Learn more and get a free copy of Tom’s book, “Contingency Planning for Your Small Business During COVID-19” at GoodSuccess.com, or email Tom directly at tolson@goodsuccess.com.