(Picture above of my Granddad and I in the summer of 1991, surveying the ocean waves for the first time)
First, I’m not a surfer since I live in Michigan…
However, I do remember the first time I saw real waves in Ventura, California. I was 13 years old and visiting my wealthy cousins for the first time at their beach house on the Pacific Ocean. The waves would come in one by one in almost perfect rolls. The smell of warm salty sea water was in the air and the sun was shining bright.
I was eager to ride some waves, so I grabbed the only remaining boogie board and jumped into the white foamy and very salty water. I found out just how salty the water was when I tried to get to where the surfers were hanging out.
I would start to paddle out, but as soon as a wave came I tried to go over it and instead it broke right in front of me. The wave caused me to tumble around in the wake while swallowing salt water for the first time. Unfortunately, this repeated itself until I drank so much salt water that I became physically ill.
Sitting at the shore feeling rejected and embarrassed, I watched the privileged surfers navigate the waters. After a while I started to see the answer to my first major mistake. The surfers would lay as flat as possible and as soon as an oncoming wave approached, they simply ducked down under the crest before it hit. This concept is illustrated below in “How to Duck Dive.”
I was now dry, beaten, and hot from the midday sun. But I knew I couldn’t leave California without riding a wave. It took a few times of ducking at the exact right time to wade out to the cool surfer dudes. I figured the next part would be easy…
Danny McBride from Eastbound & Down)
After a while of awkward silence and glares from the surfers, the time came. I watched the surfers start to get into position for the big wave that was starting to grow behind me. I decided to paddle like a mad man toward the shore. I felt the wave start to suck me back into its crest, but instead of riding the wave, its full force broke right on top of me.
I remember thinking how surreal it was being pushed down to the rocks and asking myself, “Is this how I’m going to die?”
But as fast as the white water had churned me over and over, it was done. My shoulder had a small scratch, but that was it. As I looked to the shore my brother and cousins were laughing and pointing at me. Now I can’t go back… I must try this again!
At this point the surfers had moved to a different location… (Probably because my goofy tall frame on a small boogie board was cramping their style.) After a few more attempts on much smaller waves, I was officially a boogie boarder.
So, why am I telling this story and how does it relate to real estate and investing?
Because everything in this world follows a cycle. From our weather having seasons to our lives – they all have a cycle. The below business cycle chart resembles waves in a somewhat predictable pattern of 7 to 10 year cycles. What goes up also goes down.
If you’re interested in a great explanation of this, you can check out “How The Economic Machine Works -Ray Dalio video. * Ray Dalio is an American billionaire investor, hedge fund manager, and philanthropist. Dalio is the founder of the investment firm Bridgewater Associates, one of the world’s largest hedge funds. -Wikipedia
The waves, in the below picture, are the cycles of the market, and we are trying to get to where the surfers hang out. There, the surfers (Smart Investors) are in position to see the market and are ready to capitalize on the next big wave. However, getting to this position is the struggle.
First, as you can see from the unfortunate boogie boarder in the above picture, not ducking down in time is costly. Ducking down is akin to selling investments at their peak and going into cash before the wave crashes and drags you to the shore naked!
Second, you need to paddle out to the smart investors and wade in the ocean waiting for the next perfect wave. If your timing is off, you end up paddling too early or too late. If you paddle too early you run the risk of being crushed by the
wave. If you paddle too late you miss the wave completely and end up watching your competition ride like a surf pro to riches.
I started in real estate in late 1999, right out of college. I didn’t even know there were waves and that I was playing in the ocean. From 1999 to 2006, I was aggressively paddling to get to the cool surfers. I was buying any house, duplex, or apartment that I could rent to college kids.
All I knew at the time was that the path to financial freedom was real estate. I didn’t know that a once in a life time tsunami wave was barreling toward me soon…
Long story short, like almost all real estate investors at the time, we were dragged naked by the wave and crashed onto the shore. But I didn’t drown…
Instead, I jumped right back into the water I tried to learn everything I could about market cycles and real estate. At this point, everything I had done was by myself and with my money. I liked the idea of being self-made and it was a point of pride for me. As the story goes, pride comes before the fall…
I used to think to myself, “why does this only happen to me and not the other guy?” But the reality is that it happens to everyone at some point in their life and it’s the entrepreneur’s journey. The entrepreneur’s journey is captured perfectly in yet another great video by Ray Dalio .
Around late 2009, things were at the height of despair for the economy. The government was dropping money from the sky and it still wasn’t helping.
There were great real estate deals everywhere, but I had one big problem – no money. Banks weren’t lending and almost everyone was turned off by real estate.
I couldn’t sit on the sidelines anymore and went to the devil for money – hard money lenders. The interest rates were 11-14% and included 2-3% points after purchase. Then if it sold too early there was a penalty, plus a penalty if I kept the loan more than one year.
I started a marketing campaign for Realtors in the Grand Rapids area that sold REO’s. I received a call from a Realtor regarding two vacant 4-unit properties that he was about to list.
This was in February, which is very cold in Michigan. One of the units had a roof leak that had an icicle half the size of the bedroom hanging from the ceiling all the way to the floor.
After having our contractor team look things over, we decided that we could just break up the ice while the complex was frozen and then haul it out the window. We did this after buying the property for $34K and the other 4-unit for $29K.
You can’t control Wall Street but you can control Main Street. It’s time to get back to simple investments secured by brick and mortar real estate.
Interested in hearing more? Set up a time to talk click here.
Kyle Zimpleman, Managing Member