You Should Try to Invest Only in Mortgages Secured By the Nicest 40% of Properties
Six years ago I was walking along Park Avenue in New York City with a wise, old veteran of the mortgage wars. He pointed to a nice apartment building and commented, "Did you know that Jackie Onassis, the former wife of John F. Kennedy, used to rent an apartment in that building?" "Rent?" I asked my buddy, "Did you just say rent? Jackie Onassis was once one of the richest women in the entire world, and she was just renting? She couldn't afford to buy a condo in the building?"
"George," my wise old mentor said to me, "the old-money family that owns that building along Park Avenue would never sell it. They don't need the cash, and there may be no better investment in the whole world. So, yes, if Jackie O wanted to live overlooking the Park, she had to rent, rather than buy, her apartment."
It was at that moment that I had an epiphany. No matter how bad the recession/slump gets, Jackie O was not going to default on her rent payments, nor would many other wealthy business owners.
I now call this concept, The Top 40% Rule. No matter how bad the next economic slump may get, the top 40% of all commercial properties will probably still stay rented - either to the original tenant or to a new tenant found during the slump. Someone will still have money, and those that have money will only want to rent one of the more attractive, modern, and/or best-located properties.
Japan's depression lasted for 20 years. Who knows how long the Great Recession will last? There may be a double-dip in the economy, and maybe even a third dip. After all, there were three sharp and distinct downward legs to the Great Depression.
The wise first trust deed investor will therefore look to only invest in mortgages secured by properties in the top 40% of desirability. There is, of course, no guarantee that any property will stay rented; but if you are forced to foreclose on a vacant building, at least then you will be able to compete for a good tenant.
This is not an offer to sell first mortgage investments. An offer is made only through an Offering Circular. Investing in first trust deeds and first mortgages involves substantial risk. Please be sure to carefully review the Risk Factors section of the Offering Circular before investing. A substantial and prolonged decline in real estate value is possible.
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