The Three Little Pigs – Make sure your investment portfolio doesn’t blow down

I'm going to try to tie the Three Little Pigs story in to a story of three investors that I've watched over the past few years. Two are my clients and the third is one that another agent in my office works with. I will let you guess which ones are mine.

If you remember the story of the Three Little Pigs, the first one made his house of straw and when the big bad wolf came along, (for this story the wolf will be the slowing real estate market) he huffed and puffed and blew the pig's house down.

This first investor bought one house 3 years ago and started renting it out. He was hoping to make money every month and then sell it in three years for a very nice profit, but he didn't want to buy more, and he was willing to pay full retail when he bought it three years ago. The housing market has gotten slower and has been huffing and puffing at this investor's home and now that the renter moved out... His house of investment has blown down. He can no longer afford the payments without a renter and now it is for sale as a short sale because of the condition of the property.

The second investor did a little better. He bought 4 houses 3 years ago. He bought his houses slightly under retail and also made them rentals. (It was suggested he do a lease option, but he went the rental route.) Now the big bad wolf presented himself at this investor's houses also, and he huffed and he puffed. But because this investor bought below retail, had only one vacancy, and was making a profit on the others, he is only losing a little bit of money. But if the huffing and puffing goes for a long time, his houses will fall down.

Finally, the third investor bought 10 properties, all at rock bottom prices. He bought fixers, fixed them up, and then had $30,000 equity in each property within two months and then started lease optioning them. (With a lease option you can get more than market rents.) All 10 exercised their options to buy and he made $40-50 thousand on each property. Then, he went and bought another 10 properties on 1031 exchanges to repeat the process. (I just wish I had realized three years ago, I could have been in on the sale of the lease options as well, but I was just learning about them myself.) This third investor had the wolf show up at his door and he just laughed and told him he already sold his houses. There was nothing the wolf blow over and the big bad wolf had to walk away.

The moral here is to diversify and you really can't go wrong, even if four of the third investor's properties had not sold, and had gone vacant, he still would have been making enough profit from the others every month to pay for the mortgage payments and never would have even thought of having to sell at a loss because of desperation. He had a plan and it worked!

If you are looking to get into investing in Oregon and would like to know more about lease options, owner financing, or diversifying, then drop me an e-mail or give me a call, I would love to talk.

Todd Clark - broker
Kastings & Associates
Phone: (503)524-9494
Fax: (503)622-8739