UlTImATE SUccESS GUIdECommon sense tip: Ask yourself if the area you are researching is at-
tractive to retirees. The 55+ age group in the U.S. controls over three
quarters of America’s wealth, according to the International Council of
Shopping Centers. This is why I like the Sunbelt (Southern Hemisphere
of the U.S.): warmer climates in front of Boomer migration from cold,
Northern states.
A link is provided to view population growth trends by MSA here:
http://www.SafeCashFlow.com
Affordability – This is my favorite area of research. This lesson con-
tradicts popular thinking that peak market values, from 2004 to 2007,
reflect future prices. Let me illustrate why this isn’t the case.
Picture two entrepreneurial-minded grade school children selling candy
bars. One kid sells them for 50-cents, the other for $1. The student sell-
ing his chocolate bars for $1 only asks for 5 cents now, with the 95-cent
balance due at the end of the semester. Which kid is likely to sell more
candy bars? Right! The kid that appeals to our short-sighted nature, of-
fering a deferred payment plan. Now, think about this for a second... if
she sells a box of her goods at $1 per candy bar, with these terms, does it
mean the market value of candy bars rises to $1? Heck no! At the end of
the semester, most of her customers will default on their promise. She’ll
stop offering such lenient purchase terms, and candy bars will be sold
for 50 cents again.
And there we have our credit crisis in a nutshell. During the height of
our market, in ’06 and ’07, buyers were borrowing up to NINE TIMES
their annual income to purchase properties, many of them as specula-
tors: absentee owners with no physical or emotional tie to their proper-
ties. It’s not a coincidence this happened most in the high foreclosure
states: Florida, California, Nevada, and Arizona.
When you have buyers purchasing homes via stupidly-attractive finance
terms, prices with those purchase arrangements are NOT relevant. So,
why do so many investors ask “What did the property sell for during the
height of the market?” The answer is they don’t have smarter questions
that point to TRUE value:
- What is the cost per square foot of this property vs. replacement
cost?