A case in point is the San Diego income property market. It’s been one of the nation’s darlings for my entire 40 year career. Buy something, hold it, sell it for a profit, usually a nice one, rinse and repeat. Let’s take a close look at the factors now in play that have quite efficiently rewritten the San Diego script.

The Kinda Sorta Perfect Storm OR A New Kinda Catch 22

So you do the math, and tell me how you compete with your San Diego income properties. Why on earth would an investor choose a 40-60 year old property with an inferior price/rent ratio that requires at least 50% more cash to acquire — yet still generate inferior results?

But what does this hafta do with makin’ up for my huge 401k/IRA losses?

Though I used San Diego as an example, there are many similar areas around the country. If you live in one, you recognized the bullet points above. You must adapt to local reality and embrace the real life opportunities available to you around the country. Being able to ‘drive by’ your investments simply doesn’t cut it any longer. In fact, it’s the reason most San Diego based investors find themselves mired in the inertia of false hope.

NewsFlash: Long term investment in San Diego and similar regions is dead for the foreseeable future. So when you want to use your self-directed IRA or Solo 401 etc. to recover your Wall Street losses, think short term, get in/get out type scenarios in places like San Diego. You can make some decent returns here if you know what you’re doin’.

We’re recommending safety in numbers — combine some of your self-directed capital with others to acquire properties for cash at huge discounts. Do it in a way that allows for Murphy to decimate your Plan — but still come out well. Protection of capital is now King of the HIll. The Plan must be designed such that the worst case scenario finds you with an unwanted property generating generous cash flow. If done correctly, you can turn your Plan’s invested capital 2-3 times a year.

What’s the most important point here? Simple — If you’ve lost money the last few years in your 401k, IRA etc., you must either convert to a self-directed IRA/Roth/Solo 401 or change how your current self-directed plan is invested. The smart money is adapting — using little or no leverage, while turning the capital quickly. The key is doing it through a professional team.

If you are interested in making measurable progress towards rebuilding your retirement plan so you won’t hafta work until you’re 80, contact me.

We’re the ones adapting — and it’s not our first rodeo. You can reach me at 619 889-7100. Call me — I need a fix. Have a good one.

BawldGuy Note: There will be Buy & Hold — Income — and Lender groups also. You might wanna gimme a buzz if you’re interested, as we’re designing this to be somewhat limited in scope — not dominate the world.

We’ll be buying highly discounted properties in need of no more than cosmetic fixing to sell to end user owner occupants — at below retail prices. The turnaround time is targeted for roughly 120 days, twice as long as it should take, but considering Murphy never goes on vacation, I’d say six months or so and be happy. These groups will be capitalized with funds from 5-10 retirement plans, and will be very homogenous in makeup. At this point none of these groups will be capitalized at more than $1 Million — in fact, most will be about half that figure.

The homes acquired will be, at least at first, exclusively limited to San Diego County — a region hit particularly hard by this correction. It’ll be structured so that I won’t benefit from any sharing of profits whatsoever — no exceptions. Furthermore, any ‘management’ fee will be nominal at most.

All transactions in concept will be vetted not only by our in-house tax guys, but they’ll be paid by and beholden to the investors — never me or my firm. The idea will be to get in, have professionals do any required work, get out, rinse and repeat. To the extent possible, we’re makin’ this venture as vanilla and boring as we can. Speculation is not our idea of catching up.

My team already includes Qualified Plan Specialists, CPA, Real Estate Attorney, Interior Designer, and Lender if we so choose to use, say a 50% leveraged position. Our worst case scenario includes being unable to sell the property, being forced to rent it, and holding. If the cash flow isn’t impressive in this ‘Murphy-authored’ script, we won’t acquire the property. Again, very boring and vanilla. We’re not tryin’ to set the world on fire, just make solid returns in a reasonable time period in a market in which we’ve worked for over 40 years.

If you have any interest or questions, please call me — 619 889-7100 will do the trick. We’ll be talkin’ about this in more detail soon. Have a good one.

Last week I discussed who might consider converting their traditional IRA to a Roth IRA, and thereby take advantage of the unique opportunity that is available this year only, to defer the tax impact of the conversion until 2011 and 2012 tax years. This week, I’m going to outline some strategies you can use to make the most of a 2010 conversion.

First of all, if you haven’t already made your traditional IRA contribution for 2009, you have until April 15th to do so. If you are not eligible for a deduction for your contribution because you exceed the compensation limits (your deductible amount begins to phase out if your filing status is married filing jointly and your AGI is more than $89,000 but less than $109,000. If your filing status is single, or head of household the deductible amount begins to phase out if your AGI is more than $55,000 but less than $66,000. Or if your filing status is married filing separate returns your deductible phase out starts at under $10,000. Thus, if you exceed the appropriate amounts of income for your filing status, you will not be able to claim a deduction). If it turns out that you are not able to claim a deduction, you will be eligible to convert the amount of your contribution (up to $6,000 in 2009 (if you are over 50, or $5,000 if not), to a Roth IRA tax-free. However, if there are any earnings between the time you contribute to the traditional IRA and the time you convert to the Roth, they will be taxable.

By the way, any prior year non-deductible contribution amounts can also be converted tax-free, exclusive of earnings.

Secondly, depending on the mix of assets in your retirement portfolio, you may want to convert one or more IRAs or plans, or certain assets within theses accounts, into separate Roth IRAs. That’s because you may need to reverse one or more conversions back to traditional IRAs (called recharacterizations) and having more than one Roth IRA to choose from can allow you to choose the losing Roth (e.g., containing asset(s) that may have depreciated since conversion) from those Roths and investments that are doing better than others. In doing so, your winners will continue to grow tax-free. You also avoid having to pay tax at a higher value at the time of conversion for an asset that later depreciates before the deadline for a recharacterization (up to October 15, 2011 which is your deadline with a tax foiling extension).

Also, you should avoid combining converted amounts with Roths formed in prior years, because if you ever need to recharacterize, the calculations (which need to be prorated) can be complex and not necessarily to your advantage.

Another strategy is to consider converting only a portion of your traditional IRA or pension plan, because you may have one or more depreciated assets that are likely to appreciate in the future. Converting the assets before they appreciate will save you on taxes that would apply if you were to convert them after they appreciated. Also, the overall tax burden may be too high for you if you convert all of your traditional IRA(s) in one year.

Bear in mind that there is a five-year rule associated with Roth distributions following a conversion. Any distribution during the five-year period starting on January 1st of the year of your conversion, will be subject to a 10% penalty on the entire amount of the conversion (not distribution), unless the distribution is made after age 59.5 or another exception applies. Also, if the individual who spread out the income inclusion over 2011 and 2012 dies before 2012, the deferred amount is includable in the year of death, unless the spouse acquires the deferred amount. The moral to this story is don’t die before 2012 if you want the maximum benefit of a conversion to a Roth IRA!

BawldGuy Here: Don’t let me hear any of you ever again say ‘trust guys’ don’t have a sense of humor. You may visit Pensco Trust’s site here.

You are 32 years old, a man in good health, and newly married. You have a good job, make good, not great, money, and want to start out in life on solid financial footing. You are responsible financially and, along with your wife, have saved 6 months worth of expenses. What is the next step? You have been putting money into an 401K, but recently have started to question that decision as you have a long way to go to you can access this money without penalties and you see the big ups and downs the market has provided.

You see your parents worrying about the big losses in their retirement funds over the last decade and you want to consider something different!

Perhaps an EIUL?????

You can start your EIUL with $300 month. Not a lot, but you are planning on starting a family and want to make a conservative commitment. Your life insurance planner has suggested that you inflationize the policy by increasing the premium 4% each year. You see the numbers and think that is a no brainer as 10 years down the road the premium has only gone up to $427 month. The life insurance has been minimized, to maximize the return of your money and option B has been chosen to minimize the early expenses. Your initial insurance amount is $238,000. Your LI salesman has chosen to illustrate your policy with a conservative estimate 8.5%, which is .75% less than what the policy would have returned over the last 20 year period. He also showed you what you could take out each year of retirement until you are 100 years old, an age that you are not likely to attain. He also added a rider, which would pay the premium if you are disabled before age 60, for all the time you remain disabled. This would provide you with a decent retirement even if you were to suffer a permanent disability during your prime working years. You pay premiums for 30 years until age 62.

Here are some possible results:

You die at age 50 and your heirs get $404,000 tax free. Your return on your money is 14.48%.

You are disabled at age 52. The policy premium is paid for the remaining 10 years. You can no longer work. Your life expectancy has been severely curtailed because of the disability so you start to immediately take out $26,000 a year, which will last you until you are 70 years old. Or, you have enough income producing real estate to produce an immediate income that takes care of your needs until age 62. At age 63 you start to take out income of $72,000, which will last you to age 74.

You die at age 65 and your heirs get $894,263. Your return on your money is 8.14%.

You retire at age 67 and start taking income. You can take $66,000 a year, tax free, that will last until you are 100 years old. Your heirs get $90,000 at your death. You have received over $2,120,000 tax free over the distribution period. The total cost is 1% as you get a return of 7.5%. You figure you did pretty good paying 1% instead of 40%, what the total tax cost would have been if you invested in a 401K!

You retire at age 67 and start taking income. You doubt you will live a long life as you have some heath issues and your family rarely lives into their late 80s. You figure you might live to your life expectancy of 85 years old. So you take out $85,000 year, which will last you until you are 85 years old. As luck would have it you were absolutely right on your year of death and your heirs get $218,000. Your internal rate of return was 7.6% so your cost was .9% for the life of the policy. You received a total of $1,570,192 in tax free income.

BawldGuy Here: What I’d love ya to take away here is the realization that the EIUL, using relatively small monthly premiums, can generate superb tax free retirement income to either immediately augment your real estate cash flow, or kick in later at your option. So, when we talk, remember this post by David Shafer when I bring up EIULs as a part of your personal Purposeful Plan. Have a good one.

It’s amazing how many things we learn, but mostly get better at by virtue of simply doing something over and over and over…repetition. I started the trombone in sixth grade, and stayed with it through my freshman year at Norwalk Hi. My junior hi music teacher, Mr. Hopkins, told us the first day of school in seventh grade music class that those who practiced above and beyond what was required would, by eighth grade graduation, be easily superior musicians than those who merely did what was assigned. Most of my cousins and our parents/grandparents are musicians to varying degrees, Mom and her sisters having played organ/piano in church for their preacher husbands. They told me the same thing Mr. Hopkins did — OldSchool repetition never fails — ever.

BawldGuy Axiom: We can all pretty much learn whatever our God given intellect allows, but gettin’ really good at it results from hard work, which is almost always based in repetition.

They were right, at least about trombone playin’. I was one of just eight freshman picked to be in the Norwalk Hi marching band. On the face of it that doesn’t sound like too big a deal, but about the only thing that school was know for was their parade band. They were almost always numbered among the top 10 high school marching bands in the West. Our first chair trombonist was taught one on one by Lawrence Welk’s first chair. On days he didn’t practice, he practiced for an hour — the guy was wicked good. Me? I just played trombone. For the record, I loved the parade experience there, but when we moved to Fullerton in the middle of the year, I stopped playing. That year, 1965, we were named the fifth best high school marching band in the 11 western states at the Long Beach All-Western Parade — my musical claim to fame.

How many times have we learned something well, young in life, only to miss out on how we got so good at it? Intrinsically most of us abhor learning through repetition, yet I’ve found no other way bringing with it a virtual guarantee of success. I’ve found this to be axiomatic even when the ‘repetition’ is mental in practice.

As a baseball player I yearned to pitch. Grandma said I had to practice more than the other kids to be better. Since Grandma was never wrong, I took her advice to heart. One day I took some burnt orange crayons and made a target on the garage’s side wall facing our backyard. It was the size an 11 year old wannabe pitcher thought the strike zone to be.

My first garage wall was my little sister, 18 months younger, who was too young to realize she had no business whatsoever tryin’ to catch her brother’s fastballs. Me? Hey, she was a catcher. That short-lived experiment in the temptation of imminent facial reconstruction was cut short toot sweet by Mom one day. I’d thrown a better than average fastball to her nine year old daughter, who only saved her face from who-knows-what cuz her glove was in front of it as the ball happened to land (SMACK!!) in it safely.

Turns out dozens of fastballs daily wasn’t what the doctor ordered for that wall. I broke through to the chicken wire in no time. When Mom saw it she figured out what I was doing, and let it be. Since there was no Dad or coach around, what else was a wannabe to do? That year I started half our team’s 18 games. We were the worst team in the league, but with one exception, I pitched a complete game every time out — winning one. Trust me, my fastball wasn’t blowin’ by most hitters, but my control was a lock. Problem was, my fielders on their best days couldn’t catch a cold.

Same thing happened later in high school with bodybuilding. This time though I did find a coach who took me under his wing. Inside of three years he had me competing for Mr. Teenage Southern California for real. He got me into the finals — think I was seventh. It was fun, but it was hard work, day in, day out. The guy was relentless. He was also a world champion. Disclosure: I was in great shape, and did look very good in my Speedos on stage (Thank God for no surviving pics.), but compared to the top two guys? My new name shoulda been Nancy. Repetition over almost three years took me from ground zero to competing at that level though.. Again, I was no Ahnold, but then who is?

Repetition has become one of my best buds. Later in life, it performed another miracle. Not being able to play ball with really good players any longer, I opted for umpiring. Starting with Little League at 40 years old, mainly as one-liner fodder for my friends there, I found some elite training, and enrolled at the University of Endless Reps School of Umpiring. In one year they made me Chief Umpire. Two years later I was umpiring adult amateur ball around the county — including post season play. My third year an umpire buddy recommended me to the local NCAA group in town. I was given a summer long tryout, then hired with the understanding the other umps were never learn I’d never done an inning of high school ball. At the end of my rookie college season, I was on the coachs’ preference list for post season play.

All due to spending every spare minute I had umpiring games wherever they’d let me — almost always for free. At one point I gave up three outa four weekends monthly to umpire doubleheaders on both Saturdays and Sundays. It was the incredible pro training plus the relentless repetition, compressed into a very short time period that made the difference. In three short years, counting summer and winter ball, I managed to be on the field for over 300 games — about 60% of which I was doin’ the dish. The average ump in college might officiate 30 games a season. Through sheer repetition those three years, 10 years of experience was gained.

Wanna get really good at something? Find as good a trainer as you can locate/afford, then repeat what you’ve learned as often as you can in as short a period as possible.

Then do it some more.

There are a couple ways for you to go with this, and they’re both pretty straightforward, which is how we like it, right?

One we’ll call middle of the road, traditional, vanilla, conservative, and all the other clichés. This approach is what Pensco Trust offers. You funnel pretty much whatever you decide to do through them. When you want something done, they’ll go over it with you, answer your questions, and get you the forms you’ll need. They issue the checks as you request them. Sometimes there are fees, sometimes not.

The other way is to assume control for the portion of your self-directed plan owning the real estate. Won’t go through the nuts ‘n bolts now, it’s fairly simple though, so not to worry. The key point, is that for those who wish to be able to act without an extra layer or three between your decision to do something and the actual task being executed, ‘checkbook control’ may be for you.

Beginning the week of March 22nd, a new contributor will make their debut. In effect, we’ll be offering you the ability to opt for more or less control of your plan’s real estate purchases — and especially their ongoing operation. Both ways work well — this isn’t a good vs better thing. It’s about preference. You can ‘go to the guy’ and have your oil changed — or you can buy the oil & filter and change it yourself.

The oil gets changed both ways with the same oil, same filter. Again — preference — comfort zone. We’ll be talkin’ about this later.

Gimme a call — I need a fix. 619 889-7100. Have a good one.

Sorry about the late post, but my computer died and well….you know the game I am playing. Thankfully, I prepared for this by backing up my computer. Proper computer safety requires a back up system, right? Well, at least now we will become a total APPLE family with its great inter-family connectivity!

I decided to take this time to talk about the importance of safety in investments/finance. We have all stood by and watched in amazement as bank after bank, company after company failed because they did not understand risk. I, for one, do not underestimate the “too big to fail” logic that was applied in order to bail out the banks because all systems have a “tipping point” where implosion is guaranteed once that tipping point is reached. In your personal financial lives there are tipping points too!

The question is where are those tipping points in your life and how do you protect yourself from them? The first and foremost item you can accomplish to avoid hitting your tipping point is to build up reserves. BawldGuy calls this your “sominex account.” Reserves allow you to recover from disasters. Whether this disaster is a loss of job, sickness, extreme asset devaluation, natural disaster or a rental disaster on your property, having a solid reserve fund will allow you to get through the bad times. The size of your reserve fund and the product you use to house it are dependent upon your circumstances.

But the one thing you don’t want your reserve fund to do is to lose principal.

The second item is to understand how and when to use leverage. As the banks now understand leverage in derivatives [even backed by real estate] is a double-edged sword. Great profits at great risk, no matter what your “quants” are telling you about the statistics behind the risk allocation. One of the things I love about investment real estate is it allows you to use and manage leverage and control your downside risk by sharing it with a lender! But, no matter what you invest in, you need to learn how to manage the leverage and control risk.

The final item is to learn that the turtle tends to win the financial race over the hare. Rarely does investment real estate give you long term rates of return in the double figures. But, if you look at the various investments, you see long term capital appreciation in real estate beats almost all the other investments. Trying to hit that homerun is fine for a small part of your investment portfolio, but best to leave the bulk in the slow but steady investments.

Now you know I was going to get back to EIULs eventually, right?

EIULs are great safety products. 1st you can build up a reserve account inside of them that you can access anytime you want to [up to the surrender limits]. Now, it is true that during the first 10 years of savings you would be better off in absolute numbers to put it in a savings account, but the truth is that most people will not need to use their entire reserve account during that first 10 years and if they do, there usually isn’t enough of a value divergence to make a difference in outcomes. After the first 10 years the EIUL will rapidly overcome the difference in value and become much more valuable over the long run. And of course you will not have had to pay taxes on the interest like you would for a savings account. The bottom line is that you should have both a savings account and an EIUL during those first few years anyway. If you start with an EIUL in your thirties by the time you are in your 40s you will have significant reserves inside the EIUL which is getting near market returns with no downside risk [Next post I will demonstrate a 30 year old and a 35 year old with EIULs].

Leverage in an EIUL comes from the difference between the total costs inside the EIUL and the tax savings when you access the cash value. I have demonstrated a total cost of less than 1.5% [sometimes as low as .5%] in EIULs structured correctly. Compare this to tax rates for accessing your 401K [Federal and State Income Tax + 10% penalties for unapproved access] or even the tax rates on interest you might receive from a savings account. So even if you could find a principal protected product that gives you the same return as an EIUL [which you can’t], you will lose in the long run because of taxes.

Finally, this is a turtle product where gains are moderate and losses eliminated. Sure you are not going to get gains above 16% [Minnesota Life], but you are not getting those losses [60%!] either.

BawldGuy Here: Don’t let that nugget of pure gold at the end slip by you. Knowing you’ll never have a losing year is huge over the long haul. Why? Simple — for every losing year you’ll have 1-3 years if not more spent on a treadmill to nowhere, just getting back to pre-loss levels. Again, never having a losing year for 10-30 years is ginormous for your retirement picture. ‘Nuff said.

Allow me to give you a real life almost real time example of Murphy’s Law. As I’ve written here before, Max Whitmore, Tom Vanderwell, and me have been workin’ with the technical guy (GeekDude) to create a subscription site for our more in-depth work. It was ‘posed to be up and running by around the first of the year. It’s been one thing after another — not to mention all three guys are in different states, different generations, (42, 73, 58) and with different technical skill levels.

First off was the general stuff that happens to all projects more complex than clickin’ a few WordPress buttons. Our go-to guy, a real superstar named Chris Johnson (GeekDude), has shown incredible patience — showin’ us how things work, explaining all the bells and whistles necessary for us to understand, if only at a rudimentary level.

Just when it looked as if we were hittin’ the fast lane, ready to launch, the earthquake hit Haiti. What? You want relevance? Tom Vanderwell is a hugely key player in one of the orphanages there, having a couple adoptees himself. His life was literally turned upside down. He packed his wife off to Haiti, along with his laptop for communication. Then he went into overdrive working for the orphans, AFTER working his day job at the bank. He mobilized network TV folks, raised money (almost $250K in cash), and much more.

Folks around the country collected food at their stores, left their jobs to help, and many other selfless acts. One example was a hardware chain back east. 130 stores strong, they collected several dozen pallets of food, then paid outa there own pocket for an 18 wheeler to take the food to the designated airport. Another generous guy flew supplies and anxious parents-to-be to the devastated island — but only on the strict condition that he remain absolutely anonymous. My kinda guy.

Over a 3-4 week period, two of which he said that more than 3-4 hours sleep was a luxury, he ramrodded one of the most successful spur of the moment aid efforts privately mounted. Believe me when I say, Tom is one of those unsung heroes we hear about too long after the fact. His wife returned only last week. During her absence, Tom, workin’ essentially two full time gigs now, also had to deal with three of his five kids.

So, time to launch the site, right? We thought so too, until our GeekDude’s parents-in-law were kidnapped — no, really, ya can’t make up this stuff — in Africa. They’re missionaries, and apparently this happens every now and again. According to Chris, and again, I swear on Grandma’s sainted memory this is the straight scoop, this was about the 17th time they’ve been kidnapped and let go in the last several years. They were again freed unharmed, thank God, and everyone relaxed. Chris says kidnapping has been so common that a couple times they’ve been snatched and ransomed before he and his wife knew anything at all was happening.

Come on people!!! What’s next — aliens landing on my roof?

Then my ‘puter started playin’ with my head. Then Max’s was possessed by at least half a dozen demons. And that’s where we are now. The latest development is family oriented, but it involves illness and is being taken care of, along with a contributor’s solvable health problem.

For the record, my in-house soft personnel has stopped askin’ me when the site is gonna be up and runnin’. She knows all the inside scoop, but wonders if somehow we’ve gotten on Murphy’s bad side. Um, DUH. Last thing I heard her mumble was something about pigs flying.

Anywho, that’s our sad story in a nutshell. We’ll prevail in the end, but geez, Louise, Myrtle — seriously Lord, what’s next? Locusts?

Many very kind folk, and some not so kind, have been askin’ about the subscription site, so I thought you might wanna hear our Chronicle of Tribulations. Frankly, if this is all that happens, I feel blessed. These problems are merely irritations compared with what’s happening out there in the real world.

Wanna talk real estate investing for your retirement? Gimme a call at 619 889-7100. Have a good one.

How many times have we seen college sports superstars with a world of potential fall flat on their faces in the pros, dashing the expectations thrust upon them? In baseball it’s even worse sometimes, as high school phenoms sign for a few million bucks only to disappear in the land of shoulda coulda woulda.

In real estate investing, the potential for building a solid retirement is very real. Countless people have done it — you may be in one stage or another as you read this. Expectations generated from potential, no matter how well researched, are the foundation for much of the disappointment felt down the road by investors. This is a direct result of embedding potential into analysis — a definite no-no.

There’s a huge difference between reasonably prudent expectation, and the potential for something to materialize, that’s completely out of our control.

Appreciation used to be an acceptable factor for the investor to use in their decision making process — at least for the period beginning in the late ’60s early ’70s, ’till this latest Mother of All Corrections. Even so, I’m so dang OldSchool that my long term cash flow analyses would include 5% annual increases in value at most (often less) — in the midst of whatever boom cycle we were in at the time. Even clients would raise eyebrows at me, wondering why so little. Even then, I’d attach mind numbing caveats clearly stating appreciation comes and goes, seemingly of its own volition. Nobody ever gets upset when a property appreciates more than they expected. So when you enter into an investment without any prediction of values rising, a little appreciation can be exciting.

Same goes with future rent increases, or the other side of the coin, operating expenses. Sure, a brand new property will blithely sail along for a few years with little if any maintenance, but after five years at most, checks will be written — ones with your signature.

Here are some things you can usually, not always, prudently expect.

1. Cash Flow ‘Course just cuz it spits out cash flow from Day 1 doesn’t mean it will in year three. Ya think your crystal ball is any less cracked than the rest of ours? Not freakin’ likely.

2. Your Loan Balance Will Decrease Yes, and count on this one — as long as your loan is amortized. In about five years a $200,000 loan at today’s rates will have a balance an inch less than $185,000.

BawldBarBet: Though simple logic says doubling the payment on a 30 year loan will pay it off in 15 years, that logic is erroneous. Fact is, if you increase your payment by just 44% your loan will be erased in half the time. Think reverse compounding. In other words, by adding $500 to your monthly payment on a $200,000 loan — you’re done in half the time. (30 year pmt = $1,135.58 and 15 year payment = $1,634.17 — at 5.5%)

3. Tax Shelter — Depreciation Barring changes in tax law, (Yeah, THAT never happens.) expect your cash flow to be completely sheltered by depreciation, unless you put so much down, (Or paid cash?) that the cash flow overwhelms it. These days 20-30% down payments will generate 100% tax sheltered cash flow for around 3-5 years. It could be more or less depending upon what supply/demand does with rents. Duh.

4. If you and/or you and your spouse earn $150,000/yr or more at work, DO NOT count on any tax shelter for that income. You’re considered ‘rich’, so once you hit $100,000 they begin takin’ it away ’till ya hit the $150,000 mark. At that point your depreciation will shelter your cash flow only. Except, that is, ’till it comes time to maybe offset some capital gain in the future.

Note: Unused depreciation doesn’t evaporate under normal circumstances. In fact, we incorporate that little golden factoid into many of our clients’ Purposeful Plans. But that’s a separate post by itself.

5. Murphy WILL Visit You This one ain’t potential — expect it. Sooner or later it will be your turn in his special barrel, one way or t’other. To think otherwise is folly.

6. Expect To Fund a Sominex Account (Ambien?) Those who invest in real estate without generous cash reserves simply don’t understand #5. You want the ‘potential’ to turn small problems into big ones? Don’t have abundantly funded cash reserves. Ever heard O’Toole’s Corollary to Murphy’s Law? “Murphy was an optimist.” ‘Nuff said.

7. Expect the Need to Be Flexible I’ve likened Purposeful Plans to giant trees. Incredibly strong in their ability to weather the elements, but flexible when necessary. A tree that can’t bend with the wind will, sooner or later, snap. Your Plan must be adaptable to changes in the economic landscape.

Are there more than seven? Yeah, but these seem to be the ones most frequently abused. Potential often comes disguised as a prom queen. You’ll be OK as long as you understand there simply aren’t that many prom queens floatin’ around.

Gimme a call at 619 889-7100 — I need a fix. Have a good one.

During that first summer the neighborhood kids, about half a dozen or so, accepted me into the Behrens Avenue Regulars, a name I just now gave ‘em. Though I spent a decent amount of time with those guys, the lion’s share was spent playin’ baseball with the other athletes in the extended neighborhood — if we had enough guys. We usually played over-the-line which only required 4-6 guys. I mention that only cuz it resulted in me not being a total outsider on the first day of school. As you well know, being the new kid can be, um, stressful. My first day saw me walkin’ to school with my sister, a lowly 3rd grader — not the first impression I had in mind.

I’ll pause here to note that it’s probably true, the ability to make friends and blend into new groups was an unintended but welcome consequence of attending three elementary schools, a jr. high, and three high schools. My kids, on the other hand, attended three schools total. They both have friends they’ve known since milk money was an issue. How cool is that?

Anywho, it’s the first day of fifth grade, and I’m relieved to see that a couple of my new baseball buddies are in my class. Mrs. Kuno is the teacher, a Yugoslavian born to teach kids. Even though the excitement of the first day continued, I couldn’t wait for recess. I knew we’d be playin’ kickball, and since I was the new kid, I wanted to establish myself as one of the ’sports’ kids. You know, the ones who get picked in the first couple of rounds when the two captains are choosin’ up teams.

To both my surprise and delight, I was picked second by Jim, one the summer boys. My first time up the other team moved everyone in cuz I was such a little guy. Perfect. I tripled over the center fielder’s head, much to the amazement of my teammates — and the center fielder. But I really made my bones a couple innings later.

I kicked a double my second time up. The next kid, a pretty big girl, lofted a soft fly into short right field. I knew it wouldn’t be caught, and took off like a scalded cat. Their stud grabbed the ball and threw it home. Without thinkin’, I slid into home just ahead of the throw — on the blacktop. The teacher broke into a gallop just knowing I’d broken something. The other kids? Well, anyone who slides on blacktop, hops up to rub it off, then smiles at the teacher having a heart attack, was OK with them.

I had a major strawberry on my hip for a long while. Also, Mrs. Kuno told me in no uncertain terms I was never to do that again. She was smilin’ when she said it though. Score.

By the time lunchtime arrived, my hip was in full blown agony but my spirits were flyin’ way high. The kids were playing softball, and this time I was picked third kid overall. Sweet.

‘Course as I recounted all this to Mom that night at home, what’d'ya think were the first words outa her mouth? “You slid on the blacktop?!” She had to see the bruise immediately, which I showed with immense pride. “Why would you do something like that?” Why do moms almost always ask the silly questions first? “Cuz I prolly woulda been out if I didn’t slide, that’s why.”

Rolled eyes. She was happy to hear Mrs. Kuno had laid down the ‘no slide’ law on the spot. “Um, Mom? I was safe — and we won.” I’ve always wondered if, at that moment it occurred to her I was gonna be ‘one of those kinda kids’.

Epilogue — Growing up we all learn the little practical things in life. That night I learned a particularly painful lesson. Don’t take a hot shower then put soap on a brand new strawberry that’s taken off who knows how many layers of skin. I musta sounded like Tarzan. First I put the soap on it without thinkin’, then when the pain flashed like a hundred bee stings, I pointed my hip towards the cascading hot water. (Cue the Tarzan yell.)

It’s so hard to keep up with everything a 10 year old doesn’t know.