It’s Heavy and It’s a Challenge

Editor’s Note:  This article first appeared in the April 1975 issue of the Real Estate News Observer

1975 EDITOR’S NOTE: In mid-Janu­ary, the National Society of Ex­change Counselors elected Clif­ford Weaver as its President. He replaces Richard R. Reno of San Diego, California, who was presi­dent and founder of the Society. Reno has received every honor the Society can offer.  The follow­ing is taken from remarks Weaver made during a tour of the seven regions of the United States on behalf of the Society.

Inflation—Don’t let the cur­rent drop in interest rates and reduction of prime rates fool you.  While they seem to help, we can expect difficult times ahead be­cause inflation is a pest.

The Federal Pressure—Our dollars are cheap, and will con­tinue to be cheap so long as we do not back them up with gold or other substantial items.  The Federal government has too many bills to pay, and unless it decides not to pay its obligation, it will continue to keep the pressure on the taxpayer.  And, the govern­ment continues “to keep the presses running,” making the dol­lar even less in value.  The mid ’70s do indeed have plenty of “soft” dollars.

The Silent Panic—Why hasn’t there been a panic in financial circles? Well, there really has, but owing to a strong public re­lations program, all things have been kept in place.  And, coupled with this, a great many people believe it is un-American to point out some of the weaknesses of our system.  This kind of thinking is wrong.  Our country was found­ed by free-thinking individuals who dared to challenge the sys­tem.  Some of the thinking (and doing) in the past 40 years needs challenging.  This is not un­-American.  It’s simply the right of the individual to protest an economy that provides a nega­tive cash flow and a government billions of dollars in the red.  Who will—or can—pay the price, and when?  The answer is, we better get ready to take the bitter pill and get the cure started.

The Patterns of Yesterday

Besides unions locking inflation into contracts for years to come, besides some nations removing “supply and demand” as a form­ula to establish prices for goods, and besides all of the factors locking the United States into a terrible inflation consequence, you will find in the late 1970s a new pattern for use of real investment dollars.

Avenues Open to Us

In the early 1960s, the Boeing Company really opened the door by making air travel easy and quite inexpensive.  This resulted in a new breed of real estate bro­ker—the property exchangor.  This new breed quickly battered down geographic walls that had been keeping real estate transfer at a local level.  All of the United States was open for in­vestment.  It was now possible for the Los Angeles investor to own property in Las Vegas, Phoenix, San Diego, San Francisco, and San Jose—and get to those proper­ties faster than he could travel across his own town.

New Avenues for Real Estate Acquisition Were Opened

The avenues were the airways, and these investment streets quickly provided new investment vehicles on a wide geographical basis.  No need to continue only on a local basis.  The investor could then buy inexpensive land at $15 to $20 per acre.  He could buy prop­erties that produced 10 to 14%, “cash on cash” return.  He could, because those geographical walls were knocked down by Boeing, have a secure investment he couldn’t make in his own back yard.

International Real Estate

Personally, I see the exchange of property today in an even wider area—the avenues are now open worldwide.  We must knock down the barriers if they exist and think of real estate on an international basis.  I am sure many brokers will not subscribe to this international thinking but to them, I wish them luck.  Obvi­ously there are things to be con­cerned about when considering removing international barriers to real estate transfer.  No one should try unless they are well prepared and well conditioned for the task.

It may be presumptuous for me to say that investment real es­tate is better.  I will be the first to admit that in some ways it can be worse.  However, my con­sidered opinion is that, in many areas, it is better, and frankly, “easier.”

A Real Estate Investment Fear

“Fear” is not a nice word, but . . .  I do fear a national long-term rent control.  I repeat it!  I fear long-term rent control.  This fear factor comes as a result of our not controlling the local tax assessors.  If you lock the rents and don’t lock property taxes, United States real estate will be caught in a vice.  The investor will serve only as a property man­ager for the tax assessor.  Actually, this is true right now for 75% of improved real estate which is encumbered.

The smart dollars are already out of ownership of this type of real estate.  That is, except for those who have “no basis,” or those who can’t afford to move because of “recapture” or “loan over basis.”  These dollars have shifted to other investments not subject to these pressures.

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