Real estate is a strong investment vehicle for those seeking stable, high returns compared to the alternatives (stocks, bonds, fixed income, cash). Entry points are numerous, from the purchase of one’s own home, managing a property yourself, investing in REITS on a stock exchange to equity participation in a limited partnership. I entered the profession as a commercial mortgage broker and built lasting relationships with capital sources such as regional and local banks, life insurance companies and Wall Street firms. I was hired by the principals of firms that focused on purchase and refinancing transactions. As such, I underwrote their assets to ensure the safe return of capital for my lending relationships and appropriate proceeds for the borrowing partners, ensuring a successful investment outcome. Further, working for apartment asset management firms enabled me to focus on the borrower/operator needs while ensuring the lender’s principal was monitored appropriately through the assessment of asset, management and market health.
Real estate is a “living thing” to be properly maintained with capital and healthy tenants that provide the necessary cash flow for expenses and debt service, leaving the excess capital for its investors as profit. Real estate is an asset that can be physically seen, monitored and improved making it tangible in the sense that its progress can be literally seen in relation to its competitors in the market place. I found this to be an exciting means of investing: the ability to see success by walking inside and outside the asset, observing its streets, its people and its home city (the microeconomic market). The investment becomes alive in its tangible state. Further, the diversity of markets and asset types allows the investor to choose from various size and risk profiles. This, coupled with the tax advantages of loan amortization and depreciation, along with steady cash flow and potential appreciation make real estate a worthwhile vehicle for wealth preservation and growth.
I purchased my first apartment building along a major transportation artery north of downtown Baltimore, Maryland. The rents were far below market and the common areas plus units needed cosmetic work. As the manager, I first remedied all “quality-of-life” issues to include plumbing, electric, safety and paint. The tenants are the life blood of the investment as they serve as the primary cash flow. Their satisfaction is top priority. Once completed, I raised rents to market rate at lease expiration and gave current tenants first right of refusal. I held this asset for 6 years and it served as an excellent return on equity. I knew that my attentiveness as a landlord was paramount to ensuring happy tenants (customers) and as such, low turnover meant positive and progressive cash flow. I soon bought a similar building down the street and mirrored the business strategy. They were both great successes and I sold them at the top of the market after observing a turn in the local economic cycle.
As sole manager and owner, I completed each step of a successful buy, hold and sale cycle. I moved on to roll this capital into limited partnerships where I received healthy returns without the management risk. These responsibilities were left to the general partnership (operator/manager). I found this advantageous on many levels but missed the ability to have 100% control of my capital.
The advantages to purchasing larger assets and using economies of scale of a professional management company is the next logical step to realize higher returns. The state of Texas enjoys a zero personal income tax status, tremendous job growth, a business friendly environment and warm weather that has made it a winning market. I am currently analyzing similar U.S. markets and touring assets and welcome fellow entrepreneurs, pioneers and general and limited partners to join me in the acquisition phase of the next investment cycle. The low debt interest rate environment coupled with current capitalization rates will yield a favorable spread that should generate returns to those wishing to invest in growth market assets. 2020 and beyond is to be a winning period for appreciation and rent growth. Bet on the U.S.A. Bet on your communities. I am confident they will deliver.
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