To survive/thrive in real property investing, do we need to be like a shark? We either are moving forward…or we are dying!

Our successful competitors continue to grow and improve.

The market continues to demand more and better.

The economy and government continually provide challenges we must overcome just to survive.

We may grow by acquiring more assets, improving assets, and upgrading our team.

WANT FUNDING

Where growth is a constant need, equity funding tends to be more of a want (driven by opportunity or crisis). There are ways to grow without additional equity capital.

Human – Improve the skills of your team. Provide hands-on opportunities to learn (e.g., having an office clerk spend a week as an assistant on a property). Who responds to this chance to grow?

Intellectual – System refreshment of technology provides an opportunity to revisit how we do what we do. How do we compare to the competition and to our ideal?

Financial – Free up equity capital imbedded in assets via new debt, joint venture arrangements (where what you already have provides you a seat at the table), and selling assets while retaining profitable property management. 

DESIRE PRESERVATION

The desire for preservation of wealth means something different for every person…and sometimes for the same person, depending on the tradeoffs involved.

TAXES –  Few are the investors who willingly and energetically position their investments to pay taxes! “Checkmate asset sale taxes” has motivated prospects for 1031 DSTs and Qualified Opportunity Zone funds.

NEXT GENERATION – Real property investments can hold together – or tear apart -the family as the wealth (versus the responsibility for maintain same) is passed forward to the children and grandchildren of the founders. Preservation for some is “grow or die “while others want “cash now” to live the life they desire. Typically, a few end up “persevering in order to preserve” for the many.

INFLATION HEDGE – We are experiencing real inflation for the first time in over ten years.  Real property with short term leases can adjust quickly to inflationary pressures (e.g., apartments, hotels, self-storage) while long term lease properties may suffer (e.g., office, retail, industrial). NOTE – the opposite may be true in an economic downturn, where long term leased properties could provide cash flow to survive!

SEA CHANGE PROTECTION – We learned the hard way that being good in your asset type may not be sufficient to survive a massive economic swing. The Covid economic collapse left owners of some asset types devasted (e.g., hotels, retail, office). Preservation may, at a minimum, drive diversification (beyond geographic locations) to new asset types in the portfolio. 

BOTTOM LINE

We need to grow or accept we are dying. Sitting pat is much like those who retire, have no new challenge in life, and effectively become dead while still upright.

Funding growth can come from redeployment of existing assets to truly do more with less. An improved “mean, green, fighting machine” organization can refinance to free up cash to feed growth opportunities. Tapping into OPM (“other people’s money”) may eventually be required to feed the growth machine (as “too slow, too small” growth can tied up all liquid assets, leaving the organization vulnerable.

Preservation is not a one-size-fits-all. Discernment of what is the realistic goal of the investor or organization is critical to resolve. Misquoting Yogi Berra – “If you don’t know where you are going, you may end up somewhere else.”