REALTY 101 - A.G.E.
Attention To The Foundation
Like PASSAGES (or SEASONS OF A MAN’S LIFE), there are stages of the realty cycle which are clean and clear and critical to address in a timely fashion.
Without a firm foundation, we personally fall apart over time. In the life cycle of realty, there are certain stages which require shoring up for long-term survival of the asset and owner.
ASSEMBLE ASSETS
Which comes first, equity or assets? The answer is “yes” as neither has growth potential without the other.
You can identify the asset you wish to own and have negotiated purchase price and terms. Without the necessary equity, though, you are but a pretender and are wasting the time of the seller.
You may have success in attracting equity capital, from friends and family. They will want to know what you are going to acquire, why it is a good acquisition, and WIIFT (“what is in it for them”).
The “equity – acquisition” dance takes place in view of your debt partner (e.g., bank) and your professional due diligence partners (e.g., architect, roofer, market analyst), with an attorney with a meter running, as they consider issues, which tend to morph reacting to input from your assembled team.
GROW THE ASSET VALUE
Unless you grow the value of the asset over time, sufficient to recover your time and carry costs and payment to the partners noted above, you will not survive long in the world of realty.
Most of your profit on eventual sale will, in retrospect, come from an acquisition well made (spoken as a former director of acquisitions!).
As the size of the portfolio increases, government will become your unintended partner, as it attempts to address all social ills by focusing on your every move.
Outside investors, particularly ones with a large equity investment, will require a majority independent board of directors to assure independent judgement in governance.
HARVEST EXIT
Improved cash flow from an asset does not alone determine if the acquisition and growth were successful. Only the sale market determines where you stand in the race as your cross the finish line.
It helps to start with the end in mind. Consider—
Does when my equity investors need a return of their capital align with the time needed to fully grow an asset?
Consider the same concern for lenders; what happens when a loan is coming due and the property is not fully ready for an effective re-finance? Or, if you are ready to sell, yet the loan demands a penalty for early pay off!
Will the market find your proposed sale price attractive, considering their alternative acquisition alternatives?
BOTTOM LINE.
Investment realty is a GREAT opportunity to grow faster than inflation a valuable portfolio.
Either you need to be good at juggling the many issues noted above, or the sponsor with whom you invest needs to have served their time in the realty circus.
Step right up! Welcome to the realty club.